Deflation raises its ugly head

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Government Office Chairman and Minister Vu Duc Dam told VIR the government was “very worried” about deflation risks and “I have many times told you that inflation is like hot fever and deflation is like marsh fever which is even more dangerous. Some economic experts say the danger of deflation is looming clearly, but it has been carefully analyzed by the government. And we must not be subjective and underestimate it”.

The General Statistics Office reported that Vietnam’s consumer price index (CPI) for May declined 0.06 per cent on-month, recording the lowest May CPI over the past 10 years. This marked the second minus CPI rise in this year’s first five months. In March, the CPI suddenly fell 0.19 per cent.

Ho Chi Minh City National Assembly delegate Tran Hoang Ngan said that Vietnam’s economy was slowing, with signs of deflation already revealed.

“The economy’s demand seems to be coming to the bottom. The urgent issue now is the government needs to establish a national committee to save enterprises, many of which are collapsing. According to the government’s statistics, 69 per cent of enterprises nationwide declared losses last year. This is a colossal figure,” Ngan said.

The Ministry of Planning and Investment’s Business Registration Department last week reported that in this year’s first five months, Vietnam saw 31,634 enterprises complete procedures for dissolution, and another 19,600 enterprises with contemporarily suspended operations, up 13 per cent on-year.

Nguyen Van Giau, chairman of the National Assembly Economic Committee, said though the government early January 2013 enacted Resolutions 01 and 02 to help enterprises out of difficulties, almost nothing had been done so far, because implementation of these two resolutions was awaiting guiding documents, while “people and enterprises have been eager to be helped.”

Another Ho Chi Minh City National Assembly delegate Do Van Duong said the government should “apply effective remedies to struggling enterprises soon, because all solutions over the past months are general and difficult to be implemented.”

“Though the State Bank has consecutively cut lending rates and some taxes, enterprises remain indifferent to such incentives because their health is now too weak. They need to solve inventories and pay off debts,” Duong said.

“I have seen many enterprises refuse borrowing loans at an annual lending rate of 8 per cent, because they still owe banks. Last year I termed bad debts a block of clotted blood, but now such debts mean a market decline and a confidence decline,” said delegate Tran Du Lich from Ho Chi Minh City.

However, Dam said the government would try to push credit growth to 12 per cent this year, from the 2.29 per cent in this year’s first five months.

“I would like to repeat that the government persistently presses ahead with stabilising the macro-economy, reining in inflation and making a reasonable economic growth rate,” he said.