Hanoi - Inflation in Vietnam surged to 9.45 per cent in the
first 11 months of 2007, driven by rising food prices and a recent
hike in the cost of gasoline, local media reported Wednesday.
The official Vietnam News cited Le Duc Thang, deputy director of
the government's General Statistics Office, as blaming flood damage
to agriculture in central Vietnam for the rise in food prices.
But other financial experts said the deeper factor driving
inflation was the central bank's attempt to keep the Vietnamese dong
pegged to the falling US dollar.
'Vietnam should have a flexible exchange rate, more in line with
the dollar's value on the world market,' Le Dang Doanh, a prominent
economist and former advisor to the prime minister, said in an
interview.
He said efforts to use interest rates and currency exchange
policies to slow inflation 'haven't done much to adjust the inflation
rate.'
Vietnam has long had a policy of keeping the dong roughly pegged
to the dollar to encourage investor confidence in the local currency,
while allowing it to slide gradually to encourage exports. But the
dollar's rapid fall has made this policy increasingly difficult to
maintain.
Another source of inflation has been a massive influx of foreign
currency and investment attracted by the country's fast-growing
economy. Vietnam's GDP grew 8.5 per cent last year.
The government has tried to neutralize the inflationary impact of
currency inflows by issuing bonds and by requiring banks to hold
larger foreign currency reserves, but those tools may be reaching
their limits.
Doanh argued the government's bond issues have actually had a
perverse effect. 'The money raised by issuing government bonds is
invested in state-owned companies or state construction projects,
many of which are not economically effective,' he said.
'The government has to use money from the state budget to
subsidize these companies and projects, resulting in worse inflation.'
Vietnam's move on November 22 to allow gasoline prices to rise,
from 11,300 dong per liter to 13,000 (about 0.81 dollars), has
further fueled inflation.
But with world oil prices rising to over $90 a barrel, the country
had little choice but to let gasoline prices rise. The government
says it spent 375 million dollars to subsidize gasoline prices during
the first 10 months of this year. It now plans to phase out gasoline
subsidies entirely over the next several years.
Higher fuel prices will result in higher transportation costs,
which may drive food inflation even higher than the 14.9 per cent
annual rate it has posted over the past year.
© 2007 dpa - Deutsche Presse-Agentur 
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