I don't understand much about the economy,

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Vietnam consumers struggle with rising food prices

By Marianne Brown, DPA 26 April 2011



Lien Ngoc Ha has some difficult decisions to make. She only has 100,000 dong (about 5 dollars) to feed her husband and her two sons each day. 'Six months ago I needed only 50,000 dong to make three meals for my family,' she said. 'I used to buy two chickens with the money. Now I can only buy one. I have to spend twice as much to buy twice as little.'



Food prices have risen 24 per cent over the last 12 months, the securities firm Barclays Capital reported Monday. The problem is afflicting the whole region, although Vietnamhas been hardest hit. The cost across Asia is rising at 10 per cent annually, the Asian Development Bank said in a report released on Tuesday. It blamed production shortfalls due to bad weather, high oil prices and export bans by several key food-producing countries. The problem is threatening to push millions of people in developing countries into extreme poverty, the bank said.



At a market in Hanoi, the price of meat has increased as much as 40 per cent from the beginning of this year. The price of pork alone has doubled. Nguyen Song Toan , 38, owns a poultry and vegetable stall at the market. Toan earn between 6 and 7 million dong (300 to 350 dollars) a month. It's 'enough to survive' he said, but he can no longer save money for his daughter's education. ‘Everything is more expensive, electricity, petrol, food, but people don't earn any more money.' Like other Asian nations, Vietnam is struggling to curb inflation at the same time as high economic growth. The country has to contend with other problems that also threaten economic stability, including a huge budget deficit.



In a bid to tackle the problem, the government announced that delivering rapid growth was not a priority this year, thus marking a dramatic change in policy. Instead, the focus is to achieve macroeconomic stability through tightened fiscal and monetary policies, including cutting public spending. The government also last month said it would try to keep credit growth below 20 per cent, down from the previous target of 23 per cent. As part of the battle against inflation, the State Bank of Vietnam raised its main interest rate from 9 per cent to 11 per cent in February, and devalued the dong by 8.5 per cent against the dollar, the fourth devaluation in 14 months. The devaluations have put the official value of dollar at 20,693 dong, a decrease in the value of Vietnam's currency of 13 per cent since November 2009, when banks offered around 18,000 dong to the dollar.



However, the government also announced potentially inflationary policies such as sharp increases in electricity and fuel prices. As a result, the consumer price index rose 3.32 per cent over the previous month in April, marking an annual pace of 17.51 per cent - the highest since December 2008, according to the General Statistics Office. The office said the rise consisted mostly of higher prices for education, food and foodstuffs, and housing and building materials.



In an effort to cushion the blow to the nation's poorest, the government said it would offer subsidies to low-income earners, including on electricity. The move was important 'to meet people's demands,' the head of the Socio-Economic Development Research Institute, Nguyen Minh Phong, was quoted as saying in an interview with Radio Voice of Vietnam. 'This year, businesses are facing a lot of difficulties because of a sharp increase in the exchange rate and the prices of electricity, coal, petroleum and imported products,' he said. 'The state, businesses and people should join hands to ride out difficult times.' Back at the market in Hanoi, stall-holder Toan agreed.

'I don't understand much about the economy, but I think they should help the poor,' he said. 'No one can help the poor unless the state helps them. It affects the poorest the worst.'


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The economy also has to cope with a large foreign debt, which the government says is equal to 42.2 per cent of gross domestic product. Speaking to the media in Hanoi late last month, however, the International Monetary Fund's Cephas Lumina noted that this figure did not necessarily include all borrowings by state-owned enterprises. Troubled shipbuilding firm Vinsahin is of particular concern. Last July, the Vietnamese authorities announced that the company had racked up debts totalling US $4.4 billion.



Officials also say that they want to reduce the budget deficit from around 6 per cent of GDP last year to less than 5 per cent this year. Evidence of the determination with which this goal is being pursued is the fact that fuel prices were raised for the second consecutive month in March despite the risk of stoking inflation. The stability of the banking sector is yet another concern. According to a recent ADB report, the rapid increase in the domestic credit stock, about US $100 billion during 2007-10, has raised questions about the asset quality of local banks. Vietnamese banks are also heavily exposed to real estate and state-owned enterprises, many of which are believed to be in financial difficulty. In what appears to be a move to improve the management of local banks as well as shore up their financial positions, the Prime Minister recently instructed the central bank to consider increasing the cap on foreign bank ownership for a single strategic investor from 15 per cent to 20 per cent.

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