VINACHEM

Government policies to curb inflation are on the right track, according to Planning and Investment Minister Vo Hong Phuc in an interview with the Tuoi Tre (Youth) newspaper.

The country has a relatively high Incremental Capital Output Ratio (ICOR). Does that indicate a lack of production efficiency?

There are two reasons for this worth considering. The first is that Viet Nam is a developing country. It needs to develop its infrastructure and alleviate poverty. However, poverty alleviation is only of long-term sustainable development value. Therefore, it would be wrong to look solely at the country's high ICOR. Instead, we need to look closely at those areas where the ratio is high and decide whether something needs to be done about it. It is true that there are problems which need to be fixed. For instance, investment by State-owned enterprises needs to be carefully looked at.

The State budget is invested mainly in developing infrastructure. We need to determine whether the State budget is being poorly controlled, and if so, whether that is due to a failure to formulate realistic State budget estimates or because of poor management.

Ministries are given the authority to approve budget estimates for projects. The Ministry of Transport, for instance, is responsible for transport projects, while the Ministry of Construction is in charge of civil and industrial projects. However, this approach is not objective enough. In future we must find ways to ensure investment is closely supervised and effectively used. To achieve that, we must encourage the private sector to invest in public private partnership programmes. The private sector will be more effective in investment supervision.

Numerous financial experts have said that tighter fiscal and public investment policies were needed from the beginning of this year to curb inflation. What is your view on that?

We have already cut down on public investment. Regarding the State budget deficit, we are trying to keep overspending at 5 per cent of the GDP (the National Assembly approved 5.3 per cent this year). In addition, the Government has only issued G-bonds worth VND45 trillion (US$2.3 billion). The NA earlier proposed VND63 trillion ($3.2 billion).

Only the most urgent projects will get funding from the State budget and money raised from G-bonds to boost efficiency. The Ministry of Planning and Investment will re-examine future investment projects in the near future.

It has also been claimed that inconsistent macro-economic policies have had a negative impact on the market?

In all fairness, the Government has tried to issue consistent fiscal policies. The thing is, these policies need to be harmoniously executed throughout the year. There have been instances where fiscal policies have impacted negatively on the macro-economy, particularly around the end of the year and into the next year. The Government has sometimes reined-in the economy too much or too little.

However, the Government has co-ordinated with relevant ministries when putting forth new policies, with a view to increasing macro-economic stability and curbing inflation.

What specific measures will the Government be taking regarding development and the State budget?

The measures the Government plans to take have been set out in Resolution 02 regarding the implementation of its socio-economic development plan and its State budget estimate for this year. Ministries are putting forward policies to implement these measures. In my opinion, inflation will be contained if these measures are effectively implemented. For instance, the State Bank of Viet Nam should act on its own initiative when trying to ensure there is enough liquidity in the banking system, which will help to curb inflation. The Ministry of Finance, meanwhile, will co-ordinate with relevant offices when putting the finishing touches to new regulations on price management. — VNS