Entry for October 31, 2007

Vietnam’s economic progress costly for households

HANOI: Vietnam’s blistering economic growth is attracting foreign investors, but the boom is proving costly for households, which face big rises in the price of basic products such as rice.
Consumer prices rose 9.34% year-on-year this month, after an 8.8% increase in September, according to the general statistics office (GSO).
Inflation was worrying Hanoi, which aimed to keep the rate below the growth in gross domestic product. Vietnam’s economy grew by 8.16% in the first nine months of the year.
The alarm bells grew louder this week as the national assembly seized on the issue, with prime minister Nguyen Tan Dung saying: “We want a higher economic growth and a lower inflation rate.”
The price of food, which formed more than 40% of the basket of goods used to calculate Vietnam’s inflation rate, rose 13.94% this month. The cost of rice and other grains alone increased by 15.98%.
“Global rice prices are high and global rice prices stay high as long as oil prices are high, because farmers need to buy fertiliser and fertiliser is a by-product of natural gas,” Jonathan Pincus, economist with the UN Development Programme (UNDP), said.
Vietnam joined the World Trade Organisation last January, and was opening its markets up to the world.
Dao Viet Dung of the Asian Development Bank warned this means “it is also more open to external shocks like the increase in oil prices ... resulting in the increase of pressure on prices.”
He also pointed to the property fever gripping Vietnam, from northern Hanoi to the southern economic centre of Ho Chi Minh City, the former Saigon.
The price of construction materials such as steel and cement rose by 11.72% this month.
Economists say pressure was increased by the huge inflow of foreign direct investment and the increasing use of credit (up 25% last year and 35% by middle of this year, according to the World Bank), both for consumption and business lending.
“It’s not good for the poor at all and it’s probably one of the reasons why the government was so keen to keep inflation under control,” Pincus said. – AFP