Duong Thu Huong, general secretary of the Viet Nam Banks’ Association spoke to Thoi Bao Kinh Te Viet Nam (Vietnam Economic Times) on the positive signals in the domestic economy.

After a period of stagnation there appear to be some positive signals in the economy. What is your assessment?

There are three indicators that can easily be seen as positive signs of the macro-economic index.

The first sign is that the large amount of imported goods are now at seaports and about to be re-exported.

This shows that the domestic consumption demand has reduced and is resulting in the reduction of demand for import.

Presently, the trade deficit, has been large compared to last year’s figure of US$12 billion.

If we have to re-export imported goods due to reduced purchase demand, it is a positive signal in the short-term as we can cut down the excess of imports over exports, which helps balance total payment and reduce pressures on inflation.

Secondly, the Plantation Department of the Ministry of Agriculture and Rural Development has just informed us about good harvests this year.

This is good news for troubled food prices in the world market. A good harvest will help stabilise food security and reduce food prices. It will also develop breeding (livestock) as well.

These indexes will help reduce the Consumer Price Index (CPI) as the food group accounts for 43-44 per cent of total goods when counting CPI.

This will impact people’s psychology in a positive manner and strengthen their belief in the Government’s policy.

However, to reach this aim, apart from good harvests, animal diseases need to be controlled.

Thirdly, people’s purchase demand has slowed down, especially to luxury goods. This may be not good for the medium and long term-period but for short-term it can help reduce pressure on inflation.

From these above-mentioned three signals, we can see that the solutions undertaken to control inflation and stabilise macro-economy has yielded positive results.

If these steps are maintained, the Government will be able to better control inflation and stabilise rates.

The State Bank has for a long time applied a tightened monetary policy. Do you think the time has come for it to be loosened?

I think that the State Bank is on the right path with its timely decisions. We need to continue on this policy for a little while longer.

The policy on interests has been more and more suitable to the market and has proven to be an effective way of controlling inflation.

For many years, the prime interest was ineffective but recently, it has become a tool to moderate market interest, which is an indispensable trend.

When the market interest increases, commercial banks have more capital to ensure liquidity and necessary source of credit.

After many years of remaining almost unchanged, the VND/US$ exchange rate was recently adjusted to suit the market. Why did the State Bank not act earlier?

When I was the deputy director of the State Bank, I realised that the Vietnamese dong was over-priced. For example, in 1998, I bought a coupon for a buffet at a five-star hotel in Thailand at $2 while the same buffet in Vietnam cost $15.

I wish that flexible interest rates could have been applied a long time ago as it could have prevented the difficult situation we are in today.

Vietnamese people have always preferred stability, which often brings social stability but lacks market flexibility, especially when there is some sudden change in exchange rates.

The State Bank has just adjusted the rate to suit the market but this should not be seen as dumping because we are not acting against the market trend.

One of the factors helping the Government effectively control inflation is a reduction in public expense. How do you judge the efficiency of this policy?

In the present context, controlling public expenses has great meaning to controlling inflation. If the main money output channel is tightly controlled, we can limit the pressure of money over prices.

The Government has somewhat controlled this expense but its measures have not been strong enough.

I see many expenses that can be further cut in the budget. For example, too many tourism festivals have been organised in many localities.

The activities are almost the same as traditional music galas, traditional games, processions etc. which costs a lot and have little impact.

I wonder whether these festivals really attract tourists. I think such tourism festivals should be held in such a way that people can make contributions towards organising them in a way that saves the State budget.

(Source: Viet Nam News)