Inflation lurks in the shadows
Inflation lurks in the shadows
Vietnam Institute of Economics director Tran Dinh Thien expresses concerns about the possible return of inflation when long-term radical measures to restructure the economy have yet to be strongly expedited.
The consumer price index (CPI) rising against in August after sliding in two previous months has triggered inflation concerns. Is that true?
Those concerns are practical when the CPI in August picked up 0.63 per cent against the previous month after sliding 0.26 per cent in June and 0.29 per cent in July whereas the monetary policies showed signs of being loosened. This had a precedent in the past.
The economy is in a fix both domestically and internationally. Locally, there are two scenarios in my view. In the first scenario, the economy is being cooled down with sinking demand. Prices continue to slide, showing low consumption.
In the second scenario, inflation might roar back if we did a bad job with handling monetary policies. Both scenarios must be taken into account with close control measures.
A strategic vision is urgently needed since for the economy to step into a new development period we must be consistent with our restructuring commitment. In this respect, we had yet to see a robust start-up until present.
Is the current situation so pressing that it needs immediate treatment?
Apparently, an economy with a lot of mishaps as presently must be put under tight control to ensure it is not worsened like bad debts, firms’ massively going bust or dissolved or risks to the banking system.
Besides, to realise long-term solutions we need to get rid of current short-term problems.
Concentrating on long-term and radical solutions should be established. Stagnation means decreasing investment. We could not revive investment through pumping more and more money into the economy as in doing so, inflation will surely come back. We would fail to rein in macroeconomic uncertainties at that time.
Reminding the possibility of disinflation, slow growth against high inflation is also important to stay vigilant with unexpected occurrences.
What is the ‘cure’ to the current investment climate?
There is not a cure that helps turn the investment environment immediately appealing to investors. That is because current problems of the economy did not come from recent faults, but from weaknesses inner the economy, from less effective distribution of development resources and the growth model too reliant on extraction of natural bounty.
Thereby, revising some regulations are not solutions to conversion, but it is important to modify entire resources distribution system. We should not present too high targets when actual resources remain limited.
Radical changes are also crucial in preparing quality human resources for future economic growth. We do not want to lure foreign investors based on our low-cost labour advantage that has gradually lost its charm when skilled technical workforce is insufficient.
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