According to Dr. Nguyen Quoc Viet, businesses need to consolidate their culture and business administration foundation to create higher added value and win the trust of consumers.
High inflation expectations
According to Dr. Vo Tri Thanh, Director of the Institute of Brand Development and Competition, the possibility of achieving the inflation target of 4% in 2022 is possible, but there will also be a certain error. Compared to the history, tradition and economic development process, Vietnam is a country that has experienced many periods of inflation, most recently in 2011, the inflation rate was over 20%, so the current inflation rate is still relatively low.
According to experts, Vietnam is also taking preparation steps in the medium and long term to be able to shift monetary policy towards inflation targeting like other countries at between 4% and over 5% (Source: VTV).
However, in order to assess whether inflation is high or low, it must be compared with a set threshold, which, if exceeded, will negatively affect the entire life, economy, and macro policies… remains below the threshold, tends to promote growth.
“There have been many studies on this threshold, usually in developed countries, the number is about 2-3%, it is not a coincidence that the US or EU set an inflation target of 2%. But that depends on the stage, the level of development including the level of financial and banking development, so some other studies indicate it can be from 5-8%.
In Vietnam, there are also preparations in the medium and long term to be able to shift monetary policy towards inflation targeting like other countries at between 4% and over 5%”, said Dr. Vo Tri Thanh said.
Recently, there was a view that Vietnam should expand the inflation target to above 4%, about this Dr. Vo Tri Thanh explain, the administration of policy is not only associated with economic numbers, including inflation, but what makes planners think more than expected inflation, that is, future numbers.
If inflation expectations are high, around 6-7% with the rationale that production inputs are affected by high cost-push inflation, which then pushes up the prices of consumer goods. Or before the US raised interest rates, the dollar appreciated and many currencies depreciated, the pressure on the Vietnamese exchange rate was also very high. Since the beginning of the year, the nominal VND/USD exchange rate has depreciated by about 2.4 – 2.5%. In addition to the already high world prices and the loss of exchange rates, the pressure on exchange rate transfer becomes more and more pressured.
Therefore, inflation expectations are to a certain extent perceived to be high and if it stays high, the behavior of the market, investors, and consumers, including production and business investment, will tend to capital preservation direction to switch to financial investment. Currently, the factors that create the perception of high inflation are real. The important thing here is that if the situation is still okay, the way of operating the policy is transparent, consistent with the inflation target, what policy tools does the State have to handle?
“In Vietnam at the moment, inflation is heavily dependent on external factors, such as the uncertain economic context, war, geopolitical conflicts and sanctions between Russia and the West. Supposedly, if the war is stopped, those long-term blows will continue or remain to some extent. Therefore, people often refer to scenarios in which the decisive variable is external factors. But based on actual experience and current resources, the probability is that Vietnam will still keep the inflation target.
But when looking at the macro-economy, there are also risks of the banking system, related to international payments and whether foreign currency flows in and out in Vietnam are harmonized or balanced. Along with that, is the budget deficit, public debt and a two-year development recovery program. To sum up, if we maintain the same as the first 6 months of the year and according to the baseline scenarios, the domestic and foreign forecasts for the whole year on growth and inflation, it will be good enough for this year and at the same time create momentum to continue next year”, the expert forecast.
Flexible response
Mr. Thai Quang Trung, Deputy Investment Director of VinaCapital Equity and Bond Funds, suggested that the current “lifesaver” of the business could come from the Government’s efforts to finally remove the bottlenecks of key industries in economy. For example, for banks, there is a credit growth bottleneck, in the real estate sector, the bottleneck is Decree 153 on private corporate bond issuance. In addition, in the field of public investment and infrastructure, the disbursement progress has been accelerated. Especially, in times of high inflation, Vietnam has also had experience in building a chain of price-stabilizing stores managed by the State.
Businesses and industries need to actively grasp the signals of the domestic and foreign economy to have better market forecasts. Photo: Quoc TuanEmphasizing on the element of distribution organization, economic expert Vu Vinh Phu, former chairman of the Hanoi Supermarket Association, said that it is necessary to well organize the national distribution system, reduce unreasonable intermediaries and other signs, currently relies on the strength of sales and brands to force discounts on suppliers of some retailers to manipulate the market, causing damage to both producers and consumers.
Also according to Dr. Nguyen Quoc Viet, Deputy Director of the Institute for Economic and Policy Research, businesses and industries need to proactively better grasp the signals of the domestic and foreign economy to have market forecasts, adjust production, business plans flexibly and prevent business risks better.
At the same time, proactively coordinate with research agencies, consultants and economic experts to assess domestic and foreign policy responses, related to a wide range of macroeconomic issues or by industry or field. Thereby, it is possible to better understand the policy support channels, especially the implementation of economic recovery packages to make better use of these supports, to stabilize production and business activities of enterprises.
In the context of many difficulties, inflationary pressures and risks of the business environment, businesses also need to strengthen their corporate governance culture and foundation, practice integrity, and pay attention to policies to supporting labor and developing human resources. At the same time transforming the business model in accordance with international standards, practices and new-generation trade and investment agreements, associated with digital transformation models to participate more deeply and achieve higher added value in value chains, international production and win the trust of consumers”, Dr. Nguyen Quoc Viet said.
Business Forum Magazine | Diem Ngoc | Translated by VIFUCO |August 29, 2022
