The Government chief made the emphasis in his recent article on inflation, its causes and drastic solutions to stabilize macro-economy and maintain social welfare and sustainable growth.

PM Dũng clearly pointed out that, due to complicated changes of the world economy and some internal causes of the domestic economy, the first quarter of 2008 saw a high inflation rate. Consumption price rocketed by 9.19% in March compared to December 2007 and the trade gap reached over US $7 billion in favor of import, equivalent to 56.5% of export turnover. These actualities made negative impacts on production, people’s life, macro-economic stability, and business environment.

Việt Nam can attain an economic growth rate of 7.4% in the first quarter

In its March regular meeting, the Cabinet set it major task to curb inflation, stabilize macro-economy, and maintain social welfare and sustainable growth.

“Inflation curb as our top priority, that means we should not run after growth norms set in late 2007. Instead, we should do our best to put inflation into control and decelerate price increase,” stressed the PM.

PM Dũng stated that the Government was determined to take seven key solutions: (1) Tighten the purse strings while ensuring the market liquidity and banking system’s operation; (2) Reduce public investments and regular expenses of budget-used agencies, strictly manage investments conducted by State enterprises, and reduce budget deficit; (3) Promote agro-industrial production; (4) Ensure the commodity demand-supply balance, boost export and narrow the trade gap; (5) Enhance thrift practice in production and daily life; (6) Tighten market management to prevent speculation of primary goods; and (7) Further implement policies on social welfare.

Concluding the article, the PM affirmed that, it is essential to effectively curb inflation and minimize its consequences through the participation of all State management bodies and authorities at all echelons.

He also urged the whole political system, business community, mass media and the entire people to support and join efforts with the Government to fulfill this task.

Following is the full text of the PM’s article:

STRIVING BEST TO CURB INFLATION, STABILIZE MACRO-ECONOMY, ENSURE SOCIAL WELFARE AND SUSTAINABLE GROWTH

By Nguyễn Tấn Dũng

Politburo member of the Communist Party of Việt Nam

Prime Minister

I

We have begun carrying out the socio-economic development plan for 2008 in the context of many complicated and unforeseen fluctuations in the world economy. The US economy is in serious recession: in the last quarter of 2007 GDP increased only by 0.6%, much lower than in the previous quarters. According to many forecasts, the US economy is likely to grow by 1.5% in 2008. There is even estimation that the US economy is entering the stage of recession. The US dollar has gone down in value compared to many other currencies; prices of most of the goods in the world market are going up (1). The regression of the US economy, which accounts for 25% of the world’s total GDP and over 15% of the world’s total import turnover, has seriously affected and led to the recession of many other economies. Prices are sharply increasing in most of the countries, even in the powerful economies where low prices have been maintained for years (2). Many countries have readjusted their targeted growth rate by 1-2% (3). If the US economy falls in its cycle of recession, the situation is likely to become more complicated.

Up to now, Việt Nam has been deeply integrating into the world economy. We have obtained a total export-import turnover equivalent to about 160% of GDP, in which the import accounts for nearly 90% of GDP. So, such unpredictable and unfavorable developments in the world economy and the world market over the past time have negatively impacted the growth and prices in the domestic market of Việt Nam to a stronger extent in comparison with the previous stages and with many other countries.

During 2006-2007, our country suffered seriously from natural calamities and epidemics (economic loss was estimated to be VND 33,600 billion). At the beginning of this year, a prolonged spell of harsh cold in the North and Central part caused great material losses to people and unfavorable impact to agricultural production (4).

In such external and internal circumstances, weaknesses of our national economy and the economic structure have been exposed more visible in the course of integration with the world economy, posing big challenges to the economic management and development. To overcome the situations, the entire Party, the whole people, armed forces and business community have done their utmost and made use of all the available strengths and potential to deal with difficulties, maintained socio-political stability, and improved the investment and business environment, laying a solid foundation for higher growth in a long and mid-term. We were able to obtain the GDP growth rate of 7.4% in the first quarter of 2008.

However, due to the complicated impacts from the world economy, the deficiencies and weaknesses in management and the causes from within the domestic economy, the first quarter of 2008 saw unfavorable developments and a high inflation rate; the consumption price went up by 9.19% in March compared to December 2007; and the trade gap reached over US $7 billion in favor of import, equivalent to 56.5% of the export turnover. These factors made negative impacts on production, people’s livelihood, especially concerning the salaried and the poor, macro-economic stability, and the investment and business environment.

II

In its regular meeting in late March 2008, through thorough discussions and considerations, the Government agreed to set its major task to curb inflation, stabilize the macro-economy, and maintain social welfare and sustainable growth; Inflation curb being considered the Government’s top priority. If not put into control soon, inflation will negatively influence production, people’s livelihood, macro-economic stability, and long- and mid-term economic growth; employment will be reduced and the investment environment worse. When saying inflation curb is our top priority, we mean that we should not run after the growth norms set in late 2007. Instead, we should do our best to check inflation and decelerate the price increase. In this spirit, the Government plans to request the National Assembly to reduce the growth norms and readjust the inflation index commensurate to the realities. Such readjustment is necessary so that we can focus solutions on the top priority to ensure good preconditions for high and sustainable growths in the years to come. The Government has been concentrating on directing the carrying out of the set main tasks and top priority.

The Government decided to apply the following solutions in a resolute and concerted way:

First, tighten monetary policies. Of the numerous causes of inflation, money is always one. The monetary supply and credit debt balance continuously increasing since 2004 and sharply going up in 2007 are important causes of inflation. Aware of this, the Government decided to strictly control the total means of payment and the total credit debt balance right at the beginning of this year. The State Bank must proactively and soundly flexibly use the monetary tools and policies in line with the market rules in order to attain this goal. It is important to ensure the economy’s liquidity and the performance of banks and credit organizations to facilitate production and export activities.

Second, reduce public investments and regular expenses of the agencies using the State budget; strictly manage investments conducted by State enterprises, and strive to reduce budget deficit. The investments coming from the State budget and those carried out by State-run enterprises currently account for 45% of the total social investment. Through the reduction of these sources, the demand pressure and trade deficit will be lowered, helping to raise the economy’s efficiency. The Government will specify reductions to be applied to investment capital and administrative expenditure. All ministries and local authorities are required to identify ineffective or unnecessary projects for adjustment. This task will be resolutely conducted, even in reallocating and balancing the capital sources. In this spirit, the Government requested all ministers and People’s Committee chairpersons of all provinces and cities, as representatives of State ownership, to strictly review the investment items in State-run enterprises, and resolutely remove ineffective ones. Meanwhile, the projects about to be finished or those on commodity production of all economic sectors must be facilitated and put into operation as soon as possible.

Third, concentrate efforts on agricultural and industrial production, and quickly handle all consequences caused by unfavorable weather and epidemics in order to raise food output. At present, Việt Nam’s development potential is great, especially give the fact that Việt Nam is a full member of the World Trade Organization; foreign and private investments are strongly going up; the export market is being expanded. Thus, the fundamental solution is to boost production in order to increase supplies to the domestic market and exporters, to contribute to curbing inflation, narrowing the trade gap, and giving a push to economic growth, without any side-effects. The Government has assigned ministers and People’s Committee chairpersons of provinces and cities to expeditiously remove all hindrances to capital, market and administrative procedures in order to promote production activities.

Fourth, ensure demand-supply balance in goods; boost export and narrow the trade gap. The demand-supply balance in goods, especially essential ones for production and people’s lives, is a decisive precondition for preventing sudden price fluctuation and speculation. The Prime Minister and ministers have worked - and will do so - with craft and industrial associations and enterprises trading in primary commodities (food, medicines, petroleum, steel, building materials, fertilizers), assigning them to ensure supplies and, together with the Government, to keep prices under control.

While executing the consistent policy to adopt a market price mechanism, and abolish all price subsidies, the Government has decided not to put up prices of electricity, coal, petroleum and stabilize those of cement, fertilizers, clean water, medicines, train and air tickets during the current period through June. The Ministry of Finance is entrusted to consider some fee reductions for farmers.

To guarantee food supplies for the domestic market, food security and restrain the price escalation in this field, the Government fixed the volume of rice export in 2008 at 4 million tons, and at not more than 3.2 million tons by the end of the third quarter. The Government has assigned the Ministry of Finance to propose a plan to raise export tax imposed on coal and crude oil, as well as to consider possibilities to impose export tax on rice.

The US dollar is going down in price in comparison with the currencies of the countries which are Việt Nam’s big export markets, and the prolonged current exchange rate between the Vietnamese dong and US dollar does not reflect the real relationship in the foreign exchange market. So, the Government plans to apply a flexible exchange rate with appropriate margins in conformity with the demand-supply relationship in the market, so as to help curb inflation without great impact on export while facilitating and the trading and exchange in foreign currencies.

The trade balance is a very important macro index. Trade deficit increased in 2007 and kept going up in the first quarter of this year is threatening the macro-economic balance. This problem must be settled through boosting export and controlling import. The Government is resolutely directing the carrying out of various solutions: The State Bank must provide a sufficient source of capital to exporters, purchase all of their foreign currencies, and immediately deal with specific obstacles to credits for exports. It must also further support trade promotion for exports; boost administrative procedures reforms in export activities to reduce costs for enterprises and improve the competitiveness of Vietnamese exports; and apply technical barriers and other measures tp reduce trade deficit in conformity with Việt Nam’s international commitments, even raising import tax on unessential goods.

Fifth, thoroughly practice thrift in production and consumption. Currently, prodigality is quite widespread in agencies and units. Economical possibilities for thrift in production and consumption are very big. So, the Government requests all State agencies to cut down 10% of their administrative expenses and all enterprises to check their expenditures in order to down cost price and circulation fees. The Government calls upon everyone and every family to practice thrift thoroughly in consumption, particularly in fuel and energy. This solution will help reduce the demand pressure and trade gap as well as increase production efficiency in society.

Sixth, tighten market management and supervise the enforcement of the laws on price. We must prevent all attempts to make use of market fluctuations for speculation or price increase, particularly in primary goods for production and consumption (such as petroleum, steel, cement, medicines, and food) and cross-border smuggling (particularly concerned petroleum and minerals). Businesses in all economic sectors must regularly check the selling price applied by their retailers and agents. The Government has ordered State-run corporations to take the lead in carrying out this task and be responsible to the Government for the operation of their retailers and agents. The Government has also requested craft and industrial associations to actively take part in and support these policies and solutions to stabilize the market and prices.

Seventh, broaden the policies on social welfare.

The price escalation has been affecting people’s livelihood, especially concerning the poor and disadvantaged households, natural calamity-stricken regions, and low-income laborers. So, the Government has decided to enlarge its policies on social welfare.

The Government decided a 20% increase in the minimum salary for employees in State agencies, armed forces, political and socio-political organization, starting from January 01, 2008. The Government has also decided to raise the minimum salary for Vietnamese employees working for foreign-invested enterprises, foreign and international agencies/organizations and foreign individuals in Việt Nam; for laborers working for Vietnamese companies, enterprises, cooperatives, farms, households, individuals and other labor-using entities. For trained laborers (including those trained by enterprises), the set minimum salary is at least 7% higher than the regional minimum salary. Besides, pension and social insurance allowance has been raised by 20% for about 1.8 million retired people and social insurance beneficiaries; and allowance for over 1.5 million meritorious people have been raised by 20% compared to the current norm.

Recently, the Prime Minister issued Decision 289/QĐ-TTg on some policies to assist ethnic minority people, beneficiaries of social policies, poor and sub-poor households, and fishermen. Accordingly, an annual sum of money equivalent to 5 liters of kerosene will be given to ethnic minority people, social policy benefiting households, and poor households in the localities out of electricity coverage; the pension for health insurance for the poor has been raised from VND 80,000 per person per year to VND 130,000; 50% of the nominal value of health insurance cards is subsidized for members from the sub-poor households who purchase voluntary health insurance; fishermen are partly funded to buy or build their new fishing boats or other ships to serve aquaculture; they are financed to replace their ship engines with fuel-saving ones; the insurance costs for the hull of fishing boats or other ships to serve aquaculture and for accidents that may happen to the contracted sailors will be partly granted; fuels will be supplied to fishermen who own fishing boats or related service ships.

The Government has decided to stabilize tuition fees and hospital fees as well as to grant preferential loans to disadvantaged students of universities, colleges, and vocational schools. Natural calamity-stricken households and famine-stricken households will be provided, for free, with rice allocated from the national reserve (5). At the same time, we should speed up the implementation of national target programs and other supportive measures in disadvantaged and calamity-stricken areas. It is important to set up an effective mechanism and to supervise its implementation to ensure that the State aid goes to the right beneficiary and is not peculated.

III

Struggling against inflation is a hard task which requires paying a price or swap. To successfully curb inflation and minimize its consequences, it is essential to have joint efforts of all State management bodies, the sense of authorities at all echelons to follow the guidance and organize the implementation of the assigned tasks. The world market is fluctuating, so it is necessary to update information to be able to timely take prompt and accurate measures in order to minimize negative impacts from the developments of the situation and make full use of new opportunities for the country’s growth.

The Government is fully aware of its responsibility to the whole people for curbing inflation. However, this work can be fulfilled with best results only through great support and joint efforts from the entire political system, business community, mass media and all the people.

The tasks are tough, difficulties and challenges are big, but good chances and potentialities for higher economic growth are great and fundamental. We are confident that, under the leadership of the Politburo of the Central Committee of the Communist Party of Việt Nam, and with great determination and joint efforts of the entire Party, armed forces, and the whole nation, we will succeed in curbing inflation, stabilizing the macro-economy, ensuring social welfare and further sustainable economic growth, and fulfilling the 5-year plan 2006-2010 put forth by the 10 th Party Congress.

N.T.D

(1) Price of crude oil in the first quarter of 2008 increased by nearly 40% compared to the average price in 2007 and is predicted to stay high. It is even forecasted to go up further to reach US $150/barrel. Price of steel in early 2008 went up by 45.1% against late 2007; currently the asking price US $900/ton. Prices of urea fertilizers, wheat flour, and rice doubled in March 2008 in comparison with last year.

(2) Consumption price in China in February 2008 rose up 8.7% against the same period of 2007. Meanwhile, the increase was 2.7% in February 2007 compared to February 2006. In Thailand, the figures were 5.41% against 2.32% respectively; in the Philippines 5.36% against 2.64%; and the Euro-using market 3.2% against 1.84%.

(3) In 2008, many countries have readjusted their growth norms to cope with the situation: the USA 1.5% (last year 2.7%); Euro-using market 1.6% (2.6%); Japan 1.5% (1.9%); China 8% (11.4%).

(4) During the harsh cold spell in early 2008, about 200,000 ha of rice, 18,000 ha of rice seedling, 25,000 ha of vegetables were damaged. And the cold took life of 180,000 heads of cattle. The total loss was estimated to reach VND 1,000 billion.

(5) In 2007 and first three months of 2008, nearly 80,000 tons of rice from the national reserve were provided to households suffering famine and natural calamities, without any fees.