[Vnbiz] Inflation and the poor (formerly: June trade deficit down)

[Tran Dinh Hoanh]

Dear Brother Duc & CACC,

Thank you for the good note, brother Duc.  The SOE issue is really a pain in
the rear.  I started to talk about that issue at least as early as 1992, and
we will have to work on that issue for quite some time.  But, you have
touched another issue dear to my heart -- the effect of inflation on the
poor.

The poor is so close to my heart and I never forget them.  But during the
entire process of solving this inflation crisis, since March until now, I've
rarely mentioned the poor, other than reminding the government of emergency
support for the poor when needed once in awhile.  The reason of my
relatively silence is that an inflation crisis is a different problem from
social security for the poor.  Although these two problems are tied together
in consequences, i.e., high inflation hits the poor the most, they are
really two different problems.  If we dump them together, we will confuse
ourselves so much and all economic policies will be wrong and the main
problem, i.e., inflation, will be worsened.  This is not farfetched
theory.  Many developing countries around the world have made this mistake.
When there is high inflation, of course, the poor get hit the most; the
government, instead of focusing on solving inflation, spends more money to
help the poor and therefore make the inflation worse, until the entire
economy collapses.  That is why I have deliberately avoid talking about the
poor even though I've been think about them every day and my heart hurts.

But, now that the inflation crisis has lessened and may be on the way out
soon, for the last several days I have started to send private notes to some
friends in Vietnam about the situation of the poor.  Good ESP, brother
Duc.  I know that food price has been increasing so high that many urban and
rural poor can't even afford enough food on the table.  And the price
of imported fertilizers and animal foodstuffs have increased tremendously
that farmers can't afford them anymore.  So how do we solve this issue?

Right now, we know that there is rice subsidy and price control in place;
but this system doesn't work because food prices, including rice, has risen
continuously.  This tells me that food, especially rice, is being smuggled
out of the country and the current market price is the free market price.
It means, the government is spending money on subsidy and price control for
nothing.  But this is also a good thing, because if food price is truly free
market price, then probably it will not increase much more because the
global food crisis has been abated greatly (and lifting subsidy and price
control would be painless).

And we don't want more subsidy and price control on anything for the poor,
because these things don't work.  Goods will simply be smuggled out of the
country, supply will be short inside the country, and the price will just
rise.

So, for now I am thinking about two major things the government can do:

1.  An intensive system of micro-financing to lend money to farmers for
agriculture activities, be they fertilizer for the filed or foodstuff for
chicken.  I have the feeling that the banking system in place under the
Ministry of Agriculture and Rural Development (MARD) is not good enough for
this purpose.  I have the feeling that MARD's banking system works too much
like a commercial bank and not very effective in managing microcredits.  We
need to have a system similar to the Grameen Bank of Bangladesh (Dr.
Muhammad Yunus, founder of Grameen Bank has won the Nobel prize in 2006).  I
think the VN government should talk to Grameen Bank immediately to gain
expertize on running a nationwide microcredit system effectively.

The money used for this microcredit system should be taken from some
Worldbank (emergency) agriculture loans so that Vietnam doesn't simply print
more VND that will worsen inflation.

2.  In addition to that, the current VN social security system though local
women's unions and local authorities at village level seems to be very good
in helping the very poor when they are in need.  The government can rely on
this system and support it, to make sure the most desperate cases of the
poor will be taken care of decently.

But these two things will not cover many urban poor who are simply floating
out there without a village or a "phu+o+`ng" structure to support them.  I
know that many urban poor do not have any kind of community structure around
them.  They just float around in the city.  How do we help them?  I don't
know.  Still thinking.  I hope that whatever services they are doing in the
city increase in price, so that they ride the inflation storm OK.

I'm still thinking.  Please chip in to help me out.

Have a great day.

Hoanh
_______________

Duc Phamcao to vnbiz
show details 11:37 PM (10 hours ago) Reply

[ Vietnam Business Forum ]

Dear anh Hoanh and CACC,

anh Hoanh, I totally agree with you about all immediate treatment for hot
problem at hand. As I already said, I believe that the tighter measures
applied are the right treatment methods. I am even arguing against buying $$
USD for speculation with my colleagues. However, please bear in mind that
the treatment can be successful only when the dose is proper.

Moreover, can the administrative tool be the good treatment for the next
coming months? What is about the dose? High inflation seems just hit the
poor and middle class thus it does not really waken up the managers of VN
Corporate and Groups, that are very rich. As far as I know, just VND 5,000
billion ($USD 312m) was cut down from fiscal expenditure. It is too small to
be a good treatment, comparing to a project of Hanoi museum which I heard of
no delay will cost VND 2,100b or the amount of VND 21,000 billion that SBV
could in one week withdraw from the banking system by selling compulsory
note for banks.

The point here is that, the awareness of people who directly run the economy
must be changed. Honestly, on the one hand, I hope that the situation should
be worse for SOE Corporate & Groups and even Vietnam enterprises. On the
other hand, I do expect the economy early recover because if it last longer
I will be also financially hurt :(. My statement is quite a contradiction in
terms. But it is true because I find the poor awareness of people around me.

My job requires me to meet a lot of enterprises and I know that they are all
very rich thanks to last year stock market and real estate booming. They
seem ignorant about the high inflation and the poorness of many farmers who
lost land. Many find raising fund too easy thus investing carelessly. For
example, a company raised VND 1,000b bond then investing about VND 400m in
VCB stock, so far they at least lost 60% of this investment. Many spent
proceeds and retained profit on real estate and stock market, which is not
their core business. All power SOE groups tried to open bank or financial
institution with the naive thought that they have money and they can lure
employees from other banks. Consequently, the liquidity of big banks as VCB
get trouble, inter-bank overnight reached 40% some times.
Now, they begin to fell the breath of crisis. They begin to see the risk of
bankrupt and question about their investment decision. If the government at
any cost to save those SOE corporate, even by harsh administrative tools
that can lead to stagflation there will may be not good treatment for
management but bad result fall on the economy as a whole. I meant that I
want to see at least some managers of those SOE corporate have to step down
for their ignorance. And these business expansions should be reduced to the
core business.

In terms of stock market, I think it is a good time to find some really good
company or too cheap stock to take some stakes. There are some but not many,
because many that are with great result last year from financial income and
real estate income can no longer get this again. I expect those Non-SOE will
soon recognize their situation and adjust their business to the core
activities that they have the edge over competitors. On the other hand
bankruptcy may be good lessons for others and for the economy as a whole.

Please do not misunderstand me. I am myself really optimistic about the
long-term development of Vietnam. I believe that government have been aware
of the situation and start taking good measures. I just raise some issues
for people not being over optimistic.

Have a great Sunday,
Duc







-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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