Good signs

The consumer price index (CPI) has kept falling over the past few months to 2.14 percent in June, 1.13 percent in July and 1.56 percent in August. The CPI is expected to stay at between 1-1.5 percent for the remaining months of this year thanks to the Government’s decisions to lower retail petrol prices twice in August.

The trade deficit has also dropped to US$1.3 billion in June, US$0.8 billion in July and US$0.9 billion in August. Notably, the import of luxury items such as automobiles, automobile spare parts and gold has declined significantly. Experts say that if these positive developments continue, it is likely that the trade deficit will stay at US$20 billion this year.

Meanwhile, the country’s foreign currency reserves are expected to rise to US$24 billion by the end of the year compared to US$20.7 billion in the middle of the year. Accordingly, the exchange rate of the VND against the US dollar is forecast to hover at around VND17,000/1US$ by December 2008.

In the past few months, the liquidity of the financial and stock markets has improved remarkably, building up investors’ confidence. The recent sharp fall in global oil prices is also good news for the national economy.

Warnings

However, Dr Vo Tri Thanh, a senior official at the Central Institute for Economic Management, warns that the national economy will still face risks in the remaining months of this year as the inflation rate and the trade deficit remain high. He explains that a low economic growth will cause a high rate of unemployment, bad debts, strikes and other negative phenomena in society.

He suggests that the Government should patiently pursue its goal of stabilising and developing the macro economy.

“Breaking loose from our chosen path will only put ourselves at risk,” says Mr Thanh.

Dr Vu Dinh Anh, deputy director of the Price and Market Research Institute under the Ministry of Finance, says that the real estate market is frozen with outstanding loans worth VND135 trillion, causing a headache to the administration. According to his analysis, there are two options for this market. First, if the Government decides to withdraw from these projects, investors will go bankrupt. Second, in case banks continue to help them, it will be difficult to reduce the amount of money in circulation.

In the current context, psychology-driven inflation should be taken into account. Once people’s confidence decreases, rumours will spread, causing market manipulation and economic instability. What happened following the recent rumours about the soaring prices of rice, petrol, gold and real estate remains a stark fact.