THE GOVERNMENT ___ No 85/BC-CP

SOCIALIST REPUBLIC OF VIỆT NAM Independence-Freedom-Happiness ___________ Hà Nội, May 30, 2008

EXPLANATORY REPORT AND ANSWERS GIVEN BY PM NGUYỄN TẤN DŨNG

At the 3rd sitting session of the 12th National Assembly

_____

Dear NA deputies,

Dear compatriots,

On behalf of the Government, I would like to send sincere thanks to all NA deputies, comrades, compatriots, and mass media who have shown their appreciation for the Government's report on curbing inflation, stabilizing the macro-economy, ensuring social security and sustainable growth. Many NA deputies presented their own detailed analysis on the actual situations and causes as well as clearly pointed out more tasks and specific measures. Some proposed to clarify the responsibilities of every Cabinet member in the Government’s management work and asked the Government to give more foundations for its proposals to readjust growth and inflation norms, tighten budget spending, reduce public investments, increase investment efficiency, narrow the trade gap, put forth monetary policies and tightly control commercial banks. They requested that the Government should give more details as to why so many State-run economic groups and corporations were doing business outside of their main areas of competence; how to ensure food security and improve farmers' livelihood; how to control of prices of primary goods; how to guarantee social security for the poor, low-income workers and civil servants; and how to speed up administrative reforms and anti-corruption.

The Government gratefully acknowledged all these sound comments from the NA deputies, comrades and compatriots. The Government will do its utmost to successfully carry out all the goals, assignments and solutions approved by the NA.

At this sitting session, 132 NA deputies sent 297 questions to the Government, PM and many other Government members. The PM asked his Cabinet members, on their own competence and obligations, to answer in writing all the questions. Over the past two days, five Ministers have directly entered the NA interpellations. On behalf of the Government, I would like to further address some issues of public concern.

I

SOME SKETCHES OF THE SOCIO-ECONOMIC SITUATION IN MAY AND DURING THE FIRST FIVE MONTHS OF 2008

In May, economic growth still keeps on its track, with some sectors making more advanced gains. The Spring-Winter rice crop in the South has increased both in productivity (3.7%) and yield (5.8%). The Spring-Winter rice crop in the North is well on track; the overall area of food crops and vegetables has increased fairly well against the same period last year. The pig herd has been reduced by 3% due to blue-ear pig disease, but the ox herd has increased by 3% and fowl by 6%. Aquaculture output has risen by 8.1% compared with the same period of 2007. The value of industrial productivity has jumped 3.4% in May compared with April and 16.4% in the first five months compared with the same period last year. FDI continues its growth, with 130 new projects licensed in May, worth a total of US $7.4 billion; the total number of licensed projects in the first five months reached 324, with a total registered capital of US $14.7 billion, increasing 160% against the same period of 2007. The export value of almost all products has increased during the first five months, with the total turnover reaching US $23.4 billion, up 27% over the same period. Import value in May is estimated to go down by US $200 million compared with April. Therefore, the May trade gap is 55.3%, which, though still a high figure, is lower than that of April (64.7%). Services and tourism have also experienced solid performance. The total retail sale of goods and services has increased 29.7% in the first five months in comparison with the same period last year.

Scientific and technological and socio-cultural activities as well as poverty reduction continue to be implemented on schedule and in accordance with the yearly plan.

National defense and security have been maintained; social order and safety stabilized.

Apart from these positive results, there are still two large socio-economic issues looming: (1) the consumption price continues to rocket, making the livelihoods of the poor and low-income people difficult; (2) the trade gap remains high, threatening macroeconomic stability.

Domestic market prices: the prices of almost all goods and services in May either decreased or increased between 0.3% to below 2%. However, there has been a sudden increase in food prices, to 22.19%, pushing the May consumption price up again (3.19%) after two months of slight decrease (March: 2.99% and April: 2.2%). Thus, in the first five months, an increase of 19.09% has been seen over the same period last year. The food price increase has mainly resulted from the food price escalation in the world market. Moreover, groundless rumors and speculation in late April in some localities contributed to the sudden increase of food prices.

The realities of poverty: According to localities' reports, as of May 21, 2008, 181,600 households nationwide, with 766,900 inhabitants, are living in poverty and suffering shortages, accounting for some 1.6% of all households and 1.5% of the agricultural population, doubling the figure for the same period last year. The main reasons for this rise are the storms and floods at the end of 2007 and the prolonged harsh cold weather snap in early 2008. The Government has sent 23,000 tons of food and VND 9.3 billion to assist those households. The Government will speed up the supportive work to the people in order to help them overcome the consequences of natural disasters and recover their production activities.

Through the considerable efforts made by the whole Party, the people, and the army, the country's socio-economic situation in the first five months, though still facing some difficulties, remains stable. The achievements gained in the first five months will consolidate our confidence and effort to successfully curb inflation, stabilize the macro-economy, ensure social security and maintain sustainable growth.

II

READJUSTMENT OF THE GDP GROWTH NORM AND THE 2008 INFLATION RATE

1. Readjusting the GDP norm

As reported to the NA, the socio-economic situation in the first five months show that it will be impractical to reach the GDP growth rate of 8.5-9% or higher as set out in the socio-economic development plan 2008. Based on the realities, the Government asked the NA to consider the readjustment of the GDP growth rate 2008 down to 7%. The majority of the NA deputies agreed with the Government's proposal and asked for clearer foundations for the readjustment. Some deputies even proposed to maintain the original norm which was set in early 2008. The Government would like to give more information as follows:

GDP growth is an overall norm, measuring the economic development over a certain period. This is an index of orientation which is also an important foundation on which to base policies, allocate resources and calculate other norms in the development plan. Therefore, it is an essential tool for operating socio-economic activities.

- To fulfill the top priority of reining in inflation, we have tightened monetary policies (constrained the increase of the overall means of payment and total credit balance); checked and adjusted public and State-run investment (as well as reduce budget expenditure); and given an increased budget to social security. These solutions may reduce resources for growth. Besides, there are also many other reasons: the price increase in the world market had led to high input costs; economic difficulties faced by our main trade partners have caused difficulties for Việt Nam’s exportation; the volume of foreign indirect investments has tended to decline. Although in the first quarter GDP went up by 7.4%, it started to slow down and was much lower than the Plan. Evidently, it is practical and necessary to reduce the anticipated GDP growth rate.

- To identify a specific growth norm for 2008, in the spirit of curbing inflation and maintaining sustainable growth, the Government assigned the Ministry of Planning and Investment (Central Institute for Economic Management) to collaborate with some domestic agencies and international organizations in calculating all growth possibilities in three scenarios. Consequently, the basic growth rate is fixed at 7.2%, the high one 7.6% and the lowest 6.7%.

After considering all aspects, the Government proposed that the NA adopt 7% as the GDP growth rate for 2008. This figure does not differ that much from the forecasts given by some international organizations, and the trend in many other countries, to reduce growth rates by 0.5-2% in order to cope with the current high price escalation and inflation.

The importance, as reported by the Government to the NA in the opening ceremony of this sitting session, is that, in implementing socio-economic development tasks, we should keep an eye on realities, obtain updated information, undertake careful and thorough analysis and consider the adoption of proper policies and responses in order to minimize any negative impacts generated by the newly arising difficulties. Equally, we should quickly grasp any new opportunities and bring into play the country’s potentialities and strengths.

2. Identifying the 2008 inflation rate

When discussing the inflation situation and index in 2008, many deputies raised two questions: (1) why is inflation in Việt Nam so much higher than other countries facing similar impacts of natural calamities, epidemics, oil, food and material price escalation?; and (2) why has the Government proposed to actively curb inflation and price increases; through various solutions, to gradually reduce consumption price escalation but without giving a specific figure. These are relevant and important questions.

- For the reasons why the inflation rate in our country is much higher than that of other countries, the Government had already reported to the NA at the opening ceremony. Now I would like to give some further explanations:

First, ineffective investments have led to the low competitiveness of our products and economy. This is a profound reason which has remained unresolved for years.

Second, food prices have a considerable and direct impact on the consumer price index (CPI). Due to low per capita income and living standards, the majority of our people have to spend a large proportion of their income on food. This group of goods accounts for 42.85% of the CPI-based commodity structure. Its price has also increased the most significantly in recent successive years. Since 2004, food has accounted for 50% to 80% of the total consumption price increase [1] , and this doesn’t even take into account the fact that the high price of food and foodstuffs are the stimulators for the price escalation of other goods and services. In May 2008, the consumption price increased by 3.19% due largely to rocketing food prices (up 22.19%, the highest to date), while prices of almost all other goods had a lower increase compared with April 2008. [2]

Third, our country’s import turnover is approximate to 90% of GDP. Therefore, the world price fluctuations will widely and deeply affect the domestic market. Recently, prices of a variety of goods in the world market have sky-rocketed, many of these being major imports of ours. This leads to "import inflation". While many other countries in the region have raised the value of their currencies over the US dollar, the Vietnamese Dong’s reduction in price has helped to facilitate export activities while also exacerbating "import inflation".

Fourth, during the transformation to the market economy, we have proactively adjusted the prices of some State-controlled products. This is a very necessary step and must be carried out in accordance with a ‘roadmap’ to gradually eradicate compensation for losses and by-price subsidy. Although our new prices are still lower than those in the world market, all the price readjustment will result in price increases at home.

Fifth, from 2003 until now, we have continuously raised salaries by at least 20%. Wage increases are necessary. We have persisted in this policy as we know that it will pave the way for the increased circulation of money, causing more pressures and “price-increase” effects.

- Identifying the inflation rate in 2008

Inflation in our country, apart from those causes generated by fiscal and monetary policies and other internal factors, also results from external ones: the food price escalation in the world market pushes domestic prices up. This is inevitable, not only for importing countries but also for exporters, including Việt Nam; natural calamities and epidemics are unpredictable; the prices of oil and the US dollar continue to change dramatically and unpredictably; moreover, a psychological effect is also a factor in the formation of prices in Việt Nam. These complicated factors continue to play their part while there are only seven months left till the end of 2008. As a result, it is difficult to have firm foundations in order to present the NA with a specific figure for the price increase. Thus, the Government asks the NA to adopt the target of reining in inflation in 2008 as follows: “To proactively curb inflation and price increases; through various solutions, to gradually reduce consumption price escalation” to reach a single-digit figure within the next few years.

Generally speaking, we cannot immediately control inflation with subjective efforts. Furthermore, to avoid negative impacts on the economy, it is not necessary to reduce inflation suddenly .[3] Relying on our experience of reining in inflation in Việt Nam, and some other countries, in the 1980s and early 1990s, we know it takes time to lower the inflation rate.

Apart from that, as I mentioned above, due to the seasonal changes of supply and demand of many goods, the price changes may vary from month to month, from quarter to quarter. In such a context, the trends of price movement are of the most importance. We must drive the consumption price down. This is an urgent and feasible requirement.

With the above analysis, I would like to ask the NA to accept this proposal of the Government.

Given to poverty reduction index and other norms, the NA can assign the Government to strive best, relying on the actual growth and inflation curbing, in order to obtain the highest as possible.

III

SOME ISSUES OF PUBLIC CONCERN

1. Checking and rearranging investment projects

To curb inflation, the Government has directed the consistent implementation of eight groups of solutions, including checking and rearranging public investments, investments using Governmental bond capital, and investments made by State-owned enterprises (SOEs); making serious savings in the regular budget expenditure. The NA deputies showed their agreement with this guideline and asked the Government to aggressively implement it. The Government would like to present the following report:

- Rearranging public investment projects

Normally, when the prices of materials and equipment increase, the Government has to grant additional capital to compensate for price slippage and give more capital for projects funded by the State's budget. This year, although the prices of materials and equipment have witnessed a dramatic increase, the Government still maintains the total investment capital allocated at the beginning of the year. At the same time, the Government orders to check, cut down, and postpone ineffective and behind-schedule projects and works in order to pour capital into effective ones that can be finished in 2008 or 2009. This is a difficult task. However, ministries, sectors and localities are determined to realize the guideline. As of May 28, 2008, 28 ministries, sectors, central bodies, 43 localities and eight State-run groups and corporations had reported that the number of delayed projects in the 2008 plan was 995, worth a total State budget capital of VND 3,983 billion, accounting for 7.8% of the total budget investment capital. They are continuing proactively and promptly with this work. The PM assigned the Ministry of Planning and Investment to supervise and speed up the realization of the Government's guideline.

- For works and projects using the Governmental bond capital

The Government wants to resolutely check and postpone the projects and works for which the investment procedures have not yet been finalized. In this spirit, after checking, it has been estimated to cut over VND 9 trillion from the total investment capital in the Governmental bond, equivalent to 25% of the 2008 plan.[4] At the same time, the Government is allowing the disbursement of capital for the completed work volume in surplus of quick-operating projects and is considering adding more capital to ahead-of-schedule projects, as well as effective and key socio-economic works.

- For investment efficiency

Some NA deputies commented that, the inefficiency of investment has lasted for years and the ICOR [5] increases are too high. They asked the Government to clarify causes and present solutions.

According to some calculations, in the period 2002-2007, Việt Nam's ICOR ranged from 4.5 to 5.3. So, to make a penny of GDP, it required 4.5 to 5.3 pennies of investment capital. Our ICOR was higher than that of some countries at the same stage of development [6], because of:

Inadequate planning and weak management, investment is scattered. Many works are prolonged. Prodigality, loss, and inefficiency in investment activities can be widely seen. Our country’s growth is still extensive. The contribution of capital to economic growth tends to rise, while that to labor goes down and to other factors - technical and technological advances, manpower quality, management – still remains low.

Over recent years, investment capital for socio-economic infrastruture in rural and remote areas has accounted for a percentage though it is far to meet the expectation. This is a necessary activity, reflecting the Party and State's care for farmers and people in disadvantaged areas, and meeting the requirements for sustainable development. Those activities have helped to speed up goods production and circulation, improve people’s living conditions and travel. However, they have not quickly brought about added values to the economy quickly.

To raise investment efficiency, the Government has directed the implementation of consistent solutions, focusing on key ones such as: tightly managing investments using the budget and made by Stated-owned enterprises; perfecting institutional system; increasing the quality of planning and assessment work; heightening the responsibilities of investors and investment decision makers; enhancing inspection and supervision of the competent bodies and the whole society.

2. Saving regular budget expenditure

The Government has ordered savings of 10% in regular expenditure in the remaining eight months of 2008, in addition to the 10% saving already set out in early 2008. The Government has issued a Resolution on this issue. The Ministry of Finance has offered specific instructions. According to reports, about VND 2,700 billion have been saved.

The PM assigned the Ministry of Finance to continue pursuing and checking the effective implementation of this policy.

3. Operation of the State-run economic groups and corporations

Following the process of transformation, renovation and development of SOEs, we now have eight State-run economic groups and 96 corporations, mainly operating on the model of parent-subsidiary companies. 74% of subsidiaries are joint-stock companies with many owners. According to the Ministry of Finance's report (based on reports from 76 groups and corporations) [7] , business performance of the State-run groups and corporations in 2007 was fairly high in comparison with 2006: with most of these enterprises earning benefits . [8] Their total ownership capital was VND 377 trillion, rising by 18%, mainly from profits. Their total assets in 2007 increased by 26%; their total revenue by 24%; their total profits by 23%; and the profit-ownership capital ratio reached 17% (16% in 2006). The value of goods and services output accounted for 40% of GDP, contributing 28.8% of the gross domestic income (excluding crude oil and export-import tax).

Despite their low business efficiency and competitiveness, the SOEs have played an important role in stabilizing the macro-economy, ensuring the supply-demand balance, stabilizing the prices of primary goods, carrying out many infrastructure projects and public works in the areas of socio-economic disadvantages. Some enterprises have established their own prestigious trademarks; invested in technical transfer and qualified staff; undertaken many work items for which they previously had to hire or buy from the other countries.

Recently, some people have expressed their concern about the capital mobilization of SOEs and their investments in fields such as property and real estate, securities, finance, banking, which are not their main industries.

According to the Ministry of Finance, until December 31, 2007, the total mobilized capital (including local, foreign, short-term, long-term loans and other debts) of 76 SOEs reached some VND 514 trillion, 1.36 times bigger than their ownership capital. In general, it is still safe in terms of finance. Some enterprises obtained a higher mobilization. The Government has asked the Ministry of Finance to check and assess the reality and apply proper solution for each case.

Also by December 31, 2007, 13 groups and corporations poured money in securities and finance funds, worth VND 1,061 billion in total, accounting for 0.31% of their ownership capital and 0.13% of their total assets; 19 into founding joint-stock commercial banks (VND 4,46 billion, equivalent to 1.3% and 0.55% of their ownership capital and total assets respectively); 13 into establishing 15 securities companies (VND 420 billion, 0.12% and 0.05% respectively); 18 in real estate (VND 1,463 billion, 0.43% and 0.18% respectively). In general, the total investment capital poured in these three fields was VND 7,370 billion, a reasonable figure when compared with the SOEs’ ownership capital and total assets.

The Government and the PM are fully aware that, the SOEs are operating in key sectors of the economy, holding a large volume of the national property, foreign debts and domestic loans. Their performance can cause a considerable and direct influence on macro-economic stability, and the quality and competitiveness of the national economy. Thus, their operation must be tightly monitored and fully assessed seriously, and transparently through independent and trustworthy auditors, so as to adopt proper solutions to remove their weaknesses and raise their responsibilities and efficiency in the cause of national development.

It is important to quickly identify the main role of the State-run economic sector, in which SOEs function as a leading force, to avoid contradictions, even internal contradictions, when rearranging and renovating SOEs in line with the Party's guidelines: "Developing an economy with different models of ownership and different economic sectors, in which the State-run sector plays the leading role; the State and collective economic sectors must become firm ground for the national economy" [9] and "setting up some powerful economic groups on the basis of State-owned corporations, with the participation of other economic sectors. These groups will engage in various business activities, including the main and highly-specialized field, and undertake a dominant role in the national economy...” [10]

The Government is guiding the preparation for reviewing the pilot realization of economic groups and the designing of a decree on State-run economic groups. In the short term, all investments made by State-run economic groups and corporations in securities, banking and real estate must be tightly supervised. At the same time, it is necessary to speed up the transformation of State-owned enterprises (SOEs) in line with the approved plan, in which the fundamental solution is to effectively carry out equitization, form the multi-ownership in SOEs, forge momentum and a dynamic management mechanism, and increase the supervision of shareholders and the society at large. Thus, SOEs can play an important role in the socialist-oriented market economy of Việt Nam. The Government orders all ministers and chairpersons of provincial-level People’s Committees, as representatives for the State as owner, to instruct and supervise the implementation of this task.

4. Measures to reduce the excess of imports over exports

As a developing country targeting industrialization and modernization, a trade gap is inevitable but not such a big issue, provided it stands at a reasonable level. Nevertheless, in the first four months of this year, the excess of imports over exports (at 64.7%) was too high, causing negative impacts on our international balance of payment and macro-economic stability. Hence, the Government considers reducing the trade gap an important task, for which the fundamental solutions are to promote exports and tighten import control.

Despite the world’s sharp price fluctuations, Việt Nam’s exports in the first five months have increased 27.2% against 22% in the same period last year. If we continue to take effective measures to lift current difficulties, the overall volume of exports in 2008 is expected to increase by 26% (the plan: 20-22%). This target is very ambitious and will require great efforts if it is to be achieved.

In the first four months, the export turnover of almost all groups of commodities surged in comparison with the same period of 2007. This resulted from the fact that import prices increased and many goods were imported in greater quantities [11]. Together with the implementation of strict finance and monetary policies to reduce demands in some fields, the Government has directed competent agencies to take appropriate measures, including taxes and technical barriers, in order to limit the import of some unnecessary commodities or replaceable goods. According to initial statistics, imports in May decreased by over US $200 million against the previous month. Thanks to higher exports and lower imports, the trade gap was 55.3% in May. Though rather high, this was still low in comparison with April (64.7%).

The Government advocates the further effective realization of consistent solutions to increase exports and limit imports, ensuring the sufficiency of primary commodities for production and consumption, striving to bring the trade gape down to the 2007 level (about 30%). In order to obtain this significant macro-economic norm, contributing to national socio-economic stability and development, enterprises should proactively balance their import demands and processes; exploit and consume domestic products; prevent losses; and save fuels, materials and energy. The Government orders all offices and agencies to call upon all individuals to support thrift practices in production and consumption, provide more resources for production and business promotion, practically help the nation overcome its difficulties in order to enter the stage of stability and growth.

5. Initiative to manage prices, ensure food security and improve farmers’ livelihoods

Prices and price control are topics drawing much attention from both the NA deputies and voters. One of the main targets of Việt Nam’s renovation process is to establish a State-managed market mechanism, including the area of prices. The control of prices in line with market principles will diminish price subsidies as the prices of basic goods will be determined by the supply-demand relationship. The State regulates the market and prices chiefly by macro-economic tools. The State only controls the prices of a few types of monopolistic commodities and services which will be not compensated for losses in the future.

A few years ago, the Government defined its itinerary for applying market prices to some goods directly managed by the State in terms of prices. Accordingly, the prices of these items will be raised through reasonable steps, so as to fully apply market prices for these goods in late 2008. At its second session, the 12 th NA made a decision on the 2008 missions, including the designing and publicizing the roadmap for the endorsement of market prices in some types of State-supervised price commodities and services.

Nevertheless, in late 2007 and early 2008, inflation has surged. Thus, to prioritize the need to curb inflation and ensure social security, the Government has decided not to raise the prices of electricity, petroleum, coal, clean water, air fee, train charge and bus fees until the end of June. The Government will rely on the actual inflation and market fluctuations to adopt a comprehensive and reasonable solution for adjusting the price of each type and group of commodities under the principle whereby the State, enterprises and consumers share both benefits and burdens. The State pledges to provide assistance to secure the weaker. The Government will not spontaneously increase prices of those commodities after June.

While insisting on the policy of market prices, prices will be managed in line with the following orientations:

- For goods directly managed by the State in terms of prices, prices must be adjusted based on the results of inflation curbing, impacts of price adjustment on the market and people’s livelihoods. In case adjustments are required, it will be necessary to outline a reasonable itinerary.

Particularly, concerning the item of petroleum, due to the complicatedly rocketing prices, the Government is giving a big compensation for losses [12]. In the context of inflation, any price adjustment for oil and gas must be carefully considered, taking into account the compensation capacity of the State budget; the results of inflation curbing; the impacts on other goods, and the assistance to the poor. At first, oil importers have to guarantee their reserve, save costs, and insist on the principle of “profit compensates loss”. It is necessary to take strong measures to prevent petroleum speculation and cross-border smuggling.

- Regarding food price management, as mentioned earlier, in Việt Nam, food holds a significant percentage in the CPI-based goods structure and is directly and strongly influenced by food price on the global market. At present, as curbing inflation is the top priority, food price management has become extremely important.

Việt Nam has applied market prices to food items for a long time. This marks a big leap forward in the renovation process. The control of food prices mainly affects the demand-supply relationship through accelerating production, regulating exports and maintaining domestic food provision.

This year, the total rice yield is expected to reach 36.3-36.5 million tons, enough for domestic consumption. There are 8.3-8.5 million tons of rice (or 4.1-4.2 million tons of husked rice) for export.

The Government wants utmost to ensure national food security in any case, keep domestic rice prices at acceptable levels, and purchase all rice from farmers at the profitable price, and export rice in proper quantity and pace.

Since 1989, Việt Nam has exported around 60 million tons of rice, averaging 3 million tons each year. In the last ten years, the yearly amount of exported rice has reached over 4 million tons, particularly over 4.5 million tons in 2007. Early this year, facing natural disasters and epidemics at home, the Government decided to export 3.5-4 million tons totally in 2008, with a reasonable pace. The Ministry of Agriculture and Rural Development and the Ministry of Industry and Trade were entrusted to propose any adjustments of pace and quantity of exported rice in the last few months. In the first four months, after balancing domestic rice demand, the amount of marketable rice was 5 million tons (or 2.3 million tons of husked rice) [13]. In the first five months, Việt Nam has continued to maintain a reasonable export pace, and the volume of exported rice reached over 2.1 million tons, with turnover at US $1.17 billion, increasing 12.9% in volume and 94% in value against the same period last year.

In Việt Nam, over 90% of marketable rice output comes from the Mekong Delta. Many years ago, rice prices stood low, the Government set out the orientation for the management of rice purchasing price to ensure a 40% net profit for peasants. The orientation was widely accepted. In recent years, despite high producing costs, and increasing prices of goods and service, peasants still enjoy higher profits which must be maintained at a reasonable level. In the Spring-Winter crop, input costs increased significantly. However, thanks to higher rice selling prices, the net profits still reached over 85% [14], a large growth even in comparison with the same crop last year (70%).

However, in fact, the living standards of peasants are still low and farmers are enjoying smaller benefits from the developing process than others. Nevertheless, the improvement of living standards of peasants should not be done through raising prices of agricultural products, especially rice. The Government is instructing the preparation of a project on agriculture, peasants and rural areas, proposing consistent measures to further raise the living standards for farmers in the coming years.

Together with rice export management, the well-done rice provision at home is another important factor to ensure food security and rein in inflation. The occurrence of rice shortage and local price fever in late April is avoidable when our reserve of marketable rice is abundant and the high productivity and yield of rice is expected in the upcoming harvest. The main causes were the speculation and the poor performance of the relevant local agencies

One of the important measures to ensure a sustainable food security is to further strengthen the management and use of agricultural land, especially rice-cultivating lands. The Government is proactively instructing the implementation of resolutions of the 11 th NA on the overall planning and the five-year land use plan (2006-2010) of the whole country, so as to maintain 3.86 million hectares of rice-growing land by 2010, including over 3.3 million hectares of two-crop land. Every local authority has to supervise the implementation to limit the conversion of rice-growing land into other activities. In addition, the Government will consider the issuance of reasonable mechanisms and policies to ensure legitimate economic interests of rice cultivators.

- To stabilize prices, the most important thing is to speed up production to increase supplies for domestic consumption and export, guarantee the demand-supply balance nationwide and in each area, and prevent local imbalance. The Government entrusts State-run economic groups and corporations, and associations to heighten their responsibility in organizing distribution networks, supervising operations of their retailers and agents, selling at exact prices in accordance with contracts.

6. To fruitfully ensure market information work and proactively prevent speculation

Information has a fast and strong impact on market prices. Inaccurate information can make the market unstable, hurting people, and in the current situation, create more difficulties for the target to curb inflation. For example, the occurrence of rice price fever in April rooted from the ineffective information work. In fact, the Government’s regulations on information provision have not been implemented well. To deal with this issue, the Government orders:

State management bodies should be proactive in providing official information to people and mass media on the socio-economic situations, demand-supply relationship, market, and prices, so that people and enterprises can respond the case properly.

An effective information network should be established at all echelons in order to timely correct inaccurate information and rumors in the public as well as provide reasonable adjustments to prevent negative impacts on the stability of market and prices.

Mass media agencies are obliged to give accurate and responsible information. They should not broadcast any news which may pose negative impacts on prices and market, inflation curbing, and people. They are also responsible to disseminate the Government’s policies and market management.

The Government advises people to believe official information provided by State agencies, and to be cautious about rumors. The Government entrusts competent bodies and local authorities to supervise and seriously punish the dissemination of inaccurate information which may make the market unstable.

The Government will consolidate market management, applying tough measures to prevent and fight against cross-border smuggling of petroleum, coal and minerals.

7. Bettering social security

Ensuring social security is both a goal and a requirement of sustainable development. Over the past few years, apart from boosting economic development, the Communist Party and the State of Việt Nam have always attached significant importance to policies on social security, giving special attention to job generation, income, improvement of living standards, poverty alleviation, assistance to beneficiaries of social policies and the disadvantaged.

Việt Nam has already formed a system of social security policies, with numerous fruitful programs, projects and solutions, particularly for poverty reduction, which are widely supported by the common people and highly appreciated by the international community. Recently, to deal with natural disasters, epidemics and high inflation, the Government has issued additional policies to promptly aid the poor and the disadvantaged people.

To ensure social security in the forthcoming period, a key task is to well realize the issued policies, first of all, to allocate enough capital, formulate a mechanism of implementation and close supervision over the State’s assistance without losses. The latest reports on budget spending and food assistance to natural disaster-hit victims in 2007 in eight provinces, made by different investigation teams of the Ministry of Finance, demonstrate that local authorities have tightly instructed the implementation without losses and corruption. Nevertheless, the emergency relief work was carried out slowly; and the aid was sometimes given improperly.

Together with successfully endorsing the issued policies, it is necessary to timely revise and supplement them in line with the reality. In addition, new policies and mechanisms on social security should be continuously researched. During this sitting session, NA deputies have approved measures to ensure social security as raised in the Government’s report and contributed practical opinions on how to better social security.[15] The Government is greatly grateful to these comments.

Regarding the revision of the poverty line, between 1993 and 2006, we adjusted this five times in accordance with the country’s socio-economic realities, approaching the international standard. Each revision helps to raise the number of beneficiaries. We are currently applying the poverty line set in 2005.[16] In the context of natural disasters, epidemics and high inflation, many deputies have raised their concerns about readjusting the poverty line; the Government has acknowledged the importance of the task and instructed the readjustment as reported to the NA at the opening ceremony. The Ministry of Labor, War Invalids and Social Affairs already presented different options for adjusting the poverty line, which take into consideration of the country’s average of rising incomes and the inflation reality. The readjustment will become useful only when localities, relying on the new line, conduct serious and exact surveys on their number of poor households, and realize effective action programs on sustainable poverty alleviation.

Concerning salary and livelihoods: Depending on their specific conditions, each individual or group of people can have different feelings about the impacts of rising wages on their life in the present context of high inflation. According to statistics, since 2003, after five adjustments, the average salary of a civil servant has been raised 2.38 times, while consumption price has increased 70.22%,[17] other policies on social subsidy have been considerably improved. However, in late 2007 and early 2008, to cope with high consumption prices (especially food), the Government, observing the Political Bureau’s conclusion [18], has been guiding the preparation of necessary conditions for raising wages for non-productive administrative staff, officers and soldiers of the army, workers in enterprises, and other policy beneficiaries with a view to easing negative impacts of the high inflation.

8. Boosting the implementation and responsibility of Cabinet members

The report of the Government on curbing inflation, stabilizing the macro-economy, ensuring social security and sustainable growth has been widely supported by the NA. Nevertheless, many NA deputies, comrades, and compatriots have showed their concerns of how to implement the solutions. This is also an issue of concern among the Government and its members. In socio-economic management, in many cases, there are differences between words and actions, between policies and the implementation of these policies. Without full determination, drastic direction, promptly and consistent action, regular investigations, close supervision, timely solutions to lift up difficulties and challenges, it is impossible to obtain the desired results, in spite of sound targets and good measures. In addition, in the package of measures to rein in inflation, some may well cause side-effects, and easily create confusion. Great efforts, made by the whole political system, and support of the people are required to successfully curb inflation. Market prices and the world economy will continue to be unpredicted, and there remain many negative effects to the domestic economy. When persisting in solutions to curb inflation, the Government anticipates different situations and is closely supervising the most important macro balances in order to timely discover and deal with the complicated developments. With a high sense of responsible, the Government is focusing on instructing the consistent endorsement of all measures and has gained some initial results in some aspects. The Government places importance on inspecting and grasping the actualities, timely addressing newly arisen problems to fruitfully fulfill the tasks approved by the NA at this session, bringing about positive changes.

NA deputies

High price escalation has made the livelihoods of the majority of Vietnamese people more difficult, particularly for the poor and low-income laborers. Each household and each individual is forced to cut spending, and hardly afford their daily life. The Government is fully aware of this and shows its deep sympathy to all people. Acknowledging its responsibility, the Government pledges to spare no effort to drastically rein inflation.

The recent upheavals have helped the Government have a full insight of the complexity of the management of an economy transforming from the centrally-planning subsidy model to a socialist-oriented market one, within the context of globalization and international economic integration. The Government has also recognized its weaknesses and inefficiencies; and each Cabinet member has learned new lessons and experience.

The Government recognizes that the most positive and responsible attitude in admitting mistakes is to look straight to the reality as well as to inefficiencies and weaknesses, with a determination to eradicate shortcomings, bring into play strong points, and take urgent actions. The NA’s agreement with the Government’s report has consolidated the Government’s confidence and determination to continue its implementation of the set tasks and solutions.

Our people and country have ever faced mountains of challenges and extremely high inflation for years. Thanks to the whole nation’s joint efforts, we have overcome all difficulties, making the country advance, scoring great achievements over the last 20 years.

Nowadays, despite difficulties, our strength and position are greater and the country‘s potentialities are huge. Bringing into full play the nation’s good traditions, the strength of whole-people solidarity, the support of the people, the assistance and supervision of the NA in the spirit of community responsibility, the Government is convinced that we will successfully realize our targets of curbing inflation, stabilizing the macro-economy, ensuring social security and sustainable growth, paving the way for favorable conditions and forging a good foundation for the sustainable development in the forthcoming years.

Wishing good health to all NA deputies, comrades and compatriots,

Thank you.

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[1] Food and foodstuff prices increased by 15.6% in 2004 and the consumption price by 9.5% in comparison with December of the previous year; the figures in 2005 were 10.8% and 8.4% respectively; in 2006: 7.9% and 6.6% respectively. In 2007 and the first five months of 2008, the food and foodstuff prices rose sharply, leading to the high increase of the consumption price. In 2007, the figures were 18.92% and 12.63% respectively; and in the first five months of 2008, 52.88% and 15.96% in comparison with December 2007. So, food and foodstuff prices have had a great impacts on the CPI.

[2] According to the May price level, if food price increases at the April rate of 6.11%, the CPI will be 2.08% in May and 13.9% in the first five months.

[3] To quickly reduce inflation, it is necessary to reduce the food price by applying a high tax on rice exports or drastically cutting the export volume. However, these solutions will reduce export turnover, increase the trade gap, affect farmers' incomes and livelihoods, discourage rice cultivators, and threaten food security. Similarly, a cut in investment is necessary to reduce inflation. However, over-cutting will cause unemployment and other complicated problems relating to social security; while monetary tightening can affect the economy’s liquidity and the performance of the banks, leading to further insecurity.

[4] At the 2nd NA sitting session, the Government submitted to the NA a plan to issue VND 37 trillion worth of Governmental bonds in 2008.

[5] The Incremental Capital Output Ratio (ICOR) is the ratio of total investment of the whole society to economic growth. ICOR = periodical investment capital / additional GDP growth. It shows how much investment capital is needed to earn a penny from economic growth, or how many units of investment capital it will need to obtain a GDP growth unit. On that basis, we can calculate the amount of investment capital that the society needs to mobilize to reach a certain economic growth rate.

[6] The ICOR of the Republic of Korea in the period of 1961-1980 was 3.0; Taiwan: 2.7 (1961-1980), Indonesia: 3.7 (1981-1995); Thailand: 4.1 (1981-1995); Malaysia: 4.6 (1981-1995); China: 4.0 (2001-2006). In the period 2004-2007, the ICOR of Indonesia: 4.2-4.5; Thailand: 3.9-5.5; and Malaysia: 3.5-4.7.

[7] Excluding four State-run commercial banks, one economic group and four corporations which have finished equitization; the State Capital Investment Corporation operates in its own mechanism and some corporations have not presented their financial reports.

[8] Five loss-making corporations included the Việt Nam Silk Corporation (VISERI), Việt Nam National Salt Corporation (VISALCO), Central Corporation (COSEVCO), Sông Hồng Corporation, and the Việt Nam Waterway Corporation (VINAWACO).

[9] Resolution of the 10th Party Congress.

[10] Resolution of the 3rd Plenum of the Party Central Committee (Tenure 9).

[11] Particularly, steel (rose by 106% and was equivalent to the overall import volume in 2007), below-12-seat vehicles (up 12 times), automobile spare parts and motorbikes (2-4 times), and gold (8 times) against the same period last year.

[12] By adopting the world’s average price of crude oil in the last half month (US $128 per barrel) and maintaining the current domestic selling price, the yearly amount of losses is about VND 40,600 billion. If the average price in the last five days (from May 23-27) at US $132 per barrel, the figure is estimated VND 44,800 billion.

[13] Rice volume to balance the supply (in the last two months of 2007 and the first four months of 2008) was 19.8 million tons. The figure was 14.8 million tons after deducting domestic consumption within six months.

[14] Compared with the last Spring-Winter crop in the Mekong Delta, costs for pesticides increased 49.2%, for water pumping 66.3%, fertilizers from 41.7 to 360%, labor cost 31.4%. Peasants in the Mekong Delta earn around VND 2,000-2,500 in profit for each kilogram of rice.

[15] For example, proposal to prolong the implementation of Program 134 to 2010; prevent re-impoverishment and formulate new poverty line; resettle inhabitants, including free migrants; provide production lands to the Khmer; raise assistance for overcoming natural disasters and epidemics, especially assistance from Central budget; policies for civil servants at the grassroots level, including the employment of communal practitioners; job generation and solutions for unemployment; the use of resources earned from the equitization of hydro-electricity plants to assist local people; pay attention to training people from ethnic minorities, especially the pre-school level; take care of the livelihoods of workers in concentrated industrial parks; back enterprises in training and retraining their workers; specific mechanism of poverty reduction for 58 poorest districts.

[16] The poverty line announced in 2005 is applied in 2006-10. Accordingly, poor households are those with the average monthly income below VND 200,000 per person in rural areas and VND 260,000 in urban areas.

[17] In 2003, the consumption price increased 3%, in which food and foodstuffs rose 2.8% The figures are 9.5% and 15.6% respectively in 2004; 8.4% and 10.8% in 2005, 6.6% and 7.9% in 2006, 12.63% and 18.92% in 2007; and 15.96% and 26.56% in the first five months of 2008.

[18] Conclusion 22-KL/TW of the Political Bureau dated on April 4, 2008 on some socio-economic issues in the first quarter of 2008 reads “To adjust the roadmap of raising salary ahead of the schedule to reduce difficulties for civil servants and staff in non-productive administrative sector, soldiers of the armed forces, and workers in enterprises.”