Govt ‘should not control goods prices': economists

Govt ‘should not control goods prices': economists

Senior economists are suggesting that the government should not control the price of goods in local markets, saying that they should be driven by market forces instead.

The suggestion came amid a period of increased goods prices, notably after the huge increase in salary for state employees.

Deputy Minister of Planning and Investment, Dr Khamlien Pholsena told the National Assembly recently that the price of goods in markets has tended to increase on a monthly basis, especially for food and drinks, following the increase to the salaries of state employees.

He justified the increase by saying that there is an absence of effective measures to manage product prices at local markets.

Members of the public have been complaining that the price of goods always increases whenever salary hikes are approved, alleging that the government has failed to manage it.

However, some senior economists have argued the point and recommended that the government should not step in to control the price of goods.

Director General of the National Economic Research Institute, Dr Leeber Leebouapao stated that the recent increase of goods prices has been driven by market mechanisms, and is not directly attributable to the salary increase.

“When wages go up, it also means that buying capacity is increased and that drives demand up. When demand is high, it will eventually drive the price up,” Dr Leeber said. “I don't think the government should step in to control prices.”

He said that the circle of rising demand caused by an increase in buying capacity has increased commodity prices, and this represents production potential, which the government should make use of to drive future growth.

To maximise such potential, Dr Leeber suggested that the government introduce favourable policies to boost higher production in order to meet demand.

“Let the production balance the market price, then the price will become stable,” he said, adding that farmers will also enjoy production promotion policies and commodity prices.

But he warned that if there is no appropriate promotion policy in place to boost production, then commodity prices will skyrocket to a very high level, driven by insufficient supply.

An independent economics and business advisor, Dr Mana Southichack also shared the opinion that the recent increase of product prices should not be directly linked to the increase of the salaries of state employees. Rather, he observed that there are several other reasons behind the increase.

He noted that the big jump in beef prices on local markets is linked to the fact that significant numbers of cows have been exported to Vietnam recently where prices are higher and this reduces domestic supply and increases demand.

“It is the market mechanism that drives the price increases, which the government shouldn't step in to control,” Dr Mana said. “If the government wants control things in this case by banning exports, then for whom is this being done?”

He stated that the answer to the issue is clear and that allowing export to external markets where prices on offer are higher will increase income for the farmers who raise the cattle. But banning the export to balance domestic prices will only save the pockets of middle and high income earners.

“The government shouldn't ban exports,” he reiterated, citing the government policy to alleviate poverty of local people. However, he added that there should be greater production promotion.

In addition, he also observed that the increase in the price of many products is linked to the fact that those products have been imported from neighbouring Thailand. The Thai government recently decided to increase the minimum wage, which increases production costs and eventually the price of finished goods.

Dr Mana stated that another factor which drives the increase in product price is the increase of electricity fees. He explained that electricity is used by the majority of businesses and this contributes to product price rises.

This year, the government increased the salary of state employees from 3,500 kip to 4,800 kip per index point (a 37 percent increase) and it has announced it will increase this further to 6,700 kip per index in 2013-14 (91 percent), and to 9,300 kip per index in 2014-15 (165 percent).

vientiane times