VINACHEM

Vietnam’s higher inflation is forecast to warrant double-digit rates this year, which will challenge the Government’s drive to stabilize the macro-economy.

Dr. Nguyen Duc Thanh, director of the Vietnam Center for Economic and Policy Research under the Hanoi-based University of Economics and Business, raised the warning at a meeting to an annual economic report in Hanoi on Wednesday.

“We forecast that this year’s inflation will rise by 10%, higher than last year. It is most likely that the Government would fail to achieve the target of keeping the inflation rate below 6%,” Thanh told the meeting.

The consumer price index (CPI) has risen by 1.25% this month while policies which aim to stimulate the economy and support enterprises under Resolution 02 are being carried out. Such policies may push inflation higher.

According to Thanh, the inflation rate is forecast to leap due to the power price hike which started late last month and the minimum wage adjustment which will take effect in the middle of this year.

Besides, last month’s credit loosing and the possible food price rise are among the factors that have sent the CPI up, he added.

The signs of rising inflation also worry several experts.

“What I am most concerned about is high inflation will damage social resources and sap the confidence of investors and people,” said Luu Bich Ho, former head of the Development Strategy Institute under the Ministry of Planning and Investment.

Thanh of the Vietnam Center for Economic and Policy Research said that last year’s total investments accounted for only 33.5% of GDP compared to 34.6% of 2011, which indicates that investments are in decline.

Besides, foreign investor confidence in Vietnam’s business environment has weakened, with total registered foreign capital last year dipping 20%.

“Large companies do not want to make investments in Vietnam. Foreign investments are flowing to Southeast Asia, but Vietnam has been unable to catch this opportunity,” said Thanh.

According to Le Quoc Phuong, deputy director of the Industry and Trade Information Center under the Ministry of Industry and Trade, bad debts are still the greatest threat to the economy.

Bad debts account for around 10% of the total outstanding loans, or some VND300 trillion, which is seriously high. This has made credit growth to stay at the lowest level in the past ten years as enterprises either failed to get access to loans or did not need loans.

Meanwhile, Ho said that bad debts, bankruptcy and production stagnation are big problems and can hardly be solved this year. “Existing solutions are just short-term remedies, and thus this year could not be as good as what the Government says.”

The Government failed to achieve targets set by the National Assembly in the past, Ho added.

Besides, according to economic expert Bui Trinh, a big problem is embedded in the most outstanding achievement last year, namely the export growth of up to 18.3%. Main export products of foreign direct investment (FDI) enterprises such as computers, components, electronic products, garment and footwear are outsourced and fabricated, and thus their added value for the domestic economy is inconsiderable.

“This means that the benefits Vietnam enjoys are very small while those of foreign countries are enormous,” Trinh said.