Controlling Inflation in Vietnam: Challenges and Solutions

1. INFLATION CONTROL OF VIETNAM 2012 Ms. Busaba Butrat Thai Trade Center Hanoi May 2012

2. Key indicators For 2011 & Targets for 2012 • One of the “hot” problem affected to Trade and investment of Vietnam is Inflation rate which has been starting since 2011 & shown by a high Consumer Price Index (CPI) of 18.58% for the whole year. • Vietnam has entered the year 2012 with the same problem of Inflation threat so one of the main targets set by the government is to control the CPI with one digit (under 10%) for the year of 2012.

3. Factors may lead to the high CPI in the beginning of 2012 Internal factors: • Uncertainty of the development; • Lack of competitive ability of enterprises in the markets; • Difficulties in production due to the increase of cost and international competition; • Bad debt & low effects of the banking and financial system operation… External factors: • Recession of the global economy and public debt; • Tendency of using non- tariff barriers from a number of big markets such as America, EU, Japan, etc… • Pressures of high inflation increasing globally, etc…

4. Measures to manage CPI • implementation of strict measures to tighten money supply and credit growth, and enhance the management of state budget spending and public investment is the main reason for the CPI slowdown; • decrease in the purchasing power of the domestic market, while bumper crops have effectively reduced the prices of agricultural products and foodstuffs; • strict implementation of measures to strengthen market and price management, has also contributed to reducing the CPI growth rate; • carry out tight and cautious monetary policy toward ensuring the proactive flexibility and harmony between monetary policy and fiscal year policy to curb inflation in 2012 at about 8 to 9 percent.

5. CPI in the down trend CPI for 2011 & the first 4 months 2012

6. Results for the 1st four months 2012

7. Trade for the first 4 months 2012 • Export increased more than Import for the first 4 months leading to the low rates of trade deficit with 1.0 % and 0.5% of the total export turnover for by the end of March and April respectively.

8. Single digit CPI: Gains & Risks Gains: • Control Inflation rate to guarantee the living cost; • Stabilize the macro – economy; • Promote for export; • Control the budget surplus with the reasonable rates; • Reduce the trade surplus rates;

9. One digit CPI: Gains & Risks Risks: . Low demand in consuming leading to the recession of production of the economy; . Number of enterprises halted operations and bad debt rose; . Import declines while the production of most heavy industries rely on imported materials; . GDP is at the modest level;

10. Current Difficulties and solutions Difficulties • Banking interest fell but remained high; • Enterprises struggled to absorb capital while the bank cannot lend; • The rate of industrial growth is lower than the same period last year; • Purchase Power decreases sharply; • Investment decreases especially from the foreign investment sources; • Living conditions fell into difficulties; • Import decline significantly;

11. Current Difficulties and solutions Solutions . Continue trying to control inflation by lowering CPI under 10% for the whole year; . Continue to lower the interest rates; . Offer supports to ease difficulties for enterprises particularly small and medium sized business; . Priorities to the groups of businesses to promote for export and balance import to have good serve for production; . Accelerating the restructuring of the banking and financial sectors as well as the economy toward industrialization;

12. Thank You !