ABC News 24/8/07 Vietnam’s economy could be showing signs of overheating as official figures show inflation on the rise. Consumer prices rose by more than eight per cent in August compared to the same time last year. And that’s despite government policies aimed at cutting import tariffs and fuel prices. Presenter – Karon Snowdon Speaker – Dr Adam McCarty, Chief Economist at Mekong Economics SNOWDON: At 8.6 per cent for August, Vietnam’s inflation rate could be heading into uncomfortable territory for the Government. Consumer prices have risen by 7 per cent in all since December, despite tariff cuts and lower fuel prices. Food prices have come under pressure with recent serious floods and disease outbreaks in livestock, most seriously rice is costing 15 per cent more. But Dr Adam McCarty, chief economist with the investment research company, Mekong Economics in Hanoi says there are other factors at work. MCCARTY: Yes, I think we were sort of expecting the numbers to go up by quite a bit this year compared to the last almost over a decade of very low numbers of inflation. Because the economy is just, maybe getting a bit overheated, infrastructure’s being totally utilised, skilled labour’s in shortage, so these sorts of things are pushing up prices. SNOWDON: So, where are most of the sort of bottlenecks occurring at the moment in the economy? MCCARTY: I think well in Hanoi and Ho Chi Minh City, there’s the services sector facing shortages of buildings and shortages of skilled labour, banks, there’s been a big rapid growth in the last two years in interest from foreigners and domestic and portfolio investments, and joint stock banks popping up everywhere. And they’ve been sucking in a lot of the best Vietnamese talent around town. SNOWDON: So are wages going up? MCCARTY: Yes, I think they are. I don’t know what the exact numbers are, but I would say well above the inflation rate, maybe 15 to 20 per cent a year for skilled labour. SNOWDON: The Government’s GDP growth target of about 8 per cent for the year, shouldn’t be hard to achieve. At 8.2 per cent last year, Vietnam is the fastest growing economy in Southeast Asia. Investments, exports and consumption are all surging ahead, but the World Bank reported in May that the booming stock market along with WTO membership “pose policy challenges for the government in the short- and medium-term”. Adam McCarty sees no major problems – yet. MCCARTY: All this excitement and the flood of interest is correlated to more efficient economy and all of the deregulation that’s been happening in the last five years. So it’s a cause and effect thing, it’s just a matter of how much capacity there is at the moment to absorb all this interest, particularly from investment funds that have grown from a few to many, very quickly. SNOWDON: So would you be expecting any particular or specific government response to these latest inflation figures? MCCARTY: Yes, but I’m not exactly sure what they’ll do. They’re a bit unpredictable at the State Bank. I think they will be controlling their deficit and their money supply as much as they can. The exchange rate has been actually depreciating against the dollar, the US dollar in the last few months. That might be a problem in the immediate future for them and it might have problems with inflation later on. SNOWDON: And also in the immediate or short term, the rises in food prices we’ve seen food prices go up, is that going to cause some hardship in some sections of Vietnam? MCCARTY: Yes, it probably will, The main commodity of rice is the main one to do with poverty and hardship, and if that price is going up in the domestic market then that makes it very difficult for people who have to buy their own rice. In the areas affected with flooding, that’ll be the central coastal areas, it’s a perennial problem and that’s the real problem with the central areas and their infrastructure gets all washed away and they have to repair and rebuild roads all the time. It’s very hard to get out of underdevelopment when you’ve been flooded seriously every five years
