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NEWS UPDATES Asean Affairs        25  February 2011

Vietnamese PM outlines inflation measures

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The Vietnamese government announced a package of measures approved by Prime Minister Nguyen Tan Dung yesterday aimed at controlling inflation, maintaining economic stability and ensuring social welfare, including cuts to State spending and tighter credit policies.

"Controlling inflation is the first priority of the government," said Permanent Deputy Prime Minister Nguyen Sinh Hung. "The austerity measures are not aimed at wages or government policy beneficiaries but to pause new equipment acquisitions, reduce energy spending and cut non-essential expenditures."

Vietnam has been grappling with high inflation, with the consumer price index rising at an annual rate of 12.24 percent in February, the highest rate of increase in the past two years. The government will also lower credit growth targets from 23 per cent to under 20 per cent, gradually cut interest rates, and give priority to agricultural production and support and essential industries.

Last year, credit growth reached 27.65 percent, pushing outstanding loans to 140 per cent of gross domestic product (GDP).

The government, together with the State Bank of Vietnam, would also dedicate all resources to controlling the foreign exchange rate. Dung ordered all major State-owned enterprises to sell their US dollar reserves to commercial banks and reminded commercial banks that they were required to sell the dollar to enterprises with a legitimate need for them at quoted rates. The dong was recently devalued and was under continued high depreciation pressures.

Dung ordered state budget expenditures to be cut by 10 percent with the overall goal of bringing state spending from 41 percent of the GDP to about 38-39 percent.

The measures were seen as a major shift in the government's emphasis on economic growth, following strong advice from the donor community in the Consultative Group Meeting last December. International Monetary Fund resident representative in Vietnam Benedict Bingham said earlier: "It is important that the government tackle the perception that it is sometimes more interested in short-term growth objectives than securing the stability needed to sustain growth over the longer term. Growth through stability should be the motto. That's the only path to sustained growth."

The prime minister yesterday also said that the prices of agricultural products were very high, so it was good time to boost agricultural production. The country would continue to minimise imports of products that could be produced domestically, he said.

Measures to maintain production, encourage exports, control imports and conserve energy were included in the government proposals yesterday.

But, despite the new focus on controlling inflation, the government also increased fuel prices by nearly 18 percent, a measure that lifted fuel prices to record levels and which was expected to have a strong inflationary impact.

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