ABC Radio Australia: Inflation in Vietnam rises to 21%

Jun 24, 2011 (ABC Radio Australia) -- Labour unrest is on the rise in Vietnam as the country struggles under ever rising inflation.

Food costs are up and not everyone can negoatiate higher wages.

Official figures show the inflation rate nearing 21 per cent -- putting it among the highest in the world.

Correspondent: Karon Snowdon
Speakers: Adam Fforde, Professor at Victoria University's Centre for Strategic Economics; Adam McCarty, Chief Economist with Mekong Economics 

SNOWDON: Vietnam's inflation rate reached 28% two years ago and hit triple figures in the 1980's. Economist Adam McCarty thinks inflation will rise to 25% this year before beginning to fall. He says some government policies like controlling credit have kept inflation from ballooning to past excesses but other policies are poorly targetted

MCCARTY: They try to regulate their way out of these problems by regulating absolutely everything and targetting absolutely every policy instrument.

SNOWDON: Is it working?

MCCARTY: Yes, but some of the policy choices cause more pain than gain.They underestimate the business uncertainty that they create by regularly changing a lot of small business regulations like it's become more difficult to import consumer goods. They've added more paperwork requirements, simply just to reduce imports of consumer goods as a tiny little step towards solving their trade balance issue.

SNOWDON: Professor Adam Fforde from Victoria University says the problem started with the credit surge when Vietnam joined the WTO in 2007, and has been made worse through political interference in the central bank.

FFORDE: Well I think the underlying politics of this are very hard to resolve unless either somebody pops up to the top who has authority to knock heads together and that hasn't happened, or you have some probably very Vietnamese complicated process of political development which basically means that the population through some process participates in elections or something, which means again the government has authority to govern. Neither of those two things appear to be happening.

SNOWDON: Wages are rising for skilled workers who can negotiate them but food, electricity and fuel are also rising, leaving real incomes stagnating or falling. Interest rates are very high. Adam McCarty is the Chief Economist with Mekong Economics in Hanoi.

MCCARTY: Then of course you have a large number of people who are unable to increase their incomes that easily.

SNOWDON: So they must be doing it pretty hard?

MCCARTY: Well some of those people are agricultural producers and others are working in factories, that's why we've had a bit more strike action over the last twelve months as they've tried to keep their real wages stable.

SNOWDON: The World bank's latest assessment of Vietnam's economy said its losing credibility because of inconsistent or half done policies and the insistence on maintaining growth over controlling inflation. But at around 6% GDP growth Adam Mccarty says it's not good enough.

MCCARTY: Vietnam should be growing at 10% a year and in fact even India is growing at 10% nowadays. So I think Vietnam has structural issues it needs to address particularly about productivity so it can grow as fast as China.

SNOWDON: And the money thrown at state enterprises isn't helping.

MCCARTY: That's the root cause of what happened over the last two or three years and they haven't really addressed that. It's almost like they've introduced this raft of policies that cause all sorts of problems but do reduce inflation, and then they seem ready to return back to easy credit and lending to state corporations again, as soon as that's over.

SNOWDON: Professor Adam Fforde from the Centre for Strategic Economic Studies at the Victoria University says labour unrest is not a threat to the state but indicates the need for political change.

FFORDE: But I don't see that happening in the short term at all. The people are very fed up with it. I mean it's very corrupt, it's very silly, it's a mess. Where this will go, it's up to them. It's hard to tell.