Until now, though inflation has been controlled, but risks of outbreak could be back at any time, because government's effort against spread investment and to improve the efficiency of state investment capital usage has not brought results as expected.

Government's demand stimulus programme has brought efficiency. Vietnam economy has overcome the recession and is entering recovery phase. GDP Growth in the first nine months reached 4.56 percent, of which, in Q3 alone, it was 5.76 percent. Banks and international financial institutions like the Asian Development Bank (ADB), HSBC, ANZ forecasts that Vietnam's economy would increase by 4.7 percent this year and it would be about 6.5-6.8 percent next year. However, along with above positive changes, inflation is likely to increase again and this could be a threat for the recovery of the economy in the coming years.

During the first nine months of this year, Vietnam's inflation just stopped at 4.11 percent, it means lower than economic growth. However, this situation may change in the remaining of this year or next year.

According to ADB's prediction, Vietnam's inflation in 2010 may touch 8.5 percent, two percentage points higher than forecast for GDP growth predicted by ADB. Some economists said that inflation in Vietnam now has tended to increase, mainly due to the price of raw materials in international market is increasing.

Those are objective factors. But weaknesses in the economy such as ineffective spread of state investment, poor performance, have still not been solved. This is potential risk creating opportunities for high inflation back at any time.

During last months of previous year, under high inflation pressure, government has directed the ministries, departments and state-run enterprises to review and cut down ineffective or not needed investments. Government also required using fund for the necessary projects for the economy; especially the projects could be put into operation in 2009. But not long after, government was forced to move the focus from fighting against inflation to combat against economic decline, leading to the appearance of demand stimulus programme and this is the opportunity for ineffective spread investment projects to come back.

After six months of decline and slow growth, investment of public sector grew strongly again in recent six months, especially in the area of state enterprises. Totally in Jan-Sep, total investment of the area reached nearly 78 trillion dong, nearly equalling to the figure of last year.

According to investment evaluation report in H1 announced by the Ministry of Planning and Investment (MoPI), the number of projects using state capital (budget, state investment credit, capital of state-run enterprises) being allowed to invest in 2009 (only 80 percent of statistics at the business firms) reached up to 8,810 projects, accounting for 27.4 percent of the total project being implemented, higher than 6,598 expected project to be completed and put into operation this year.

Accordingly, MoPI concluded: "The investment situation remained dispersed. The status of slow pace making the low investment efficiency is still quite popular. Amongst 19,808 examined projects, up to 4,076 projects are under slow progress. In addition, there are also hundreds of investment projects without proper planning, low construction quality, waste and improper tender.

Currently, there are more than 32,000 investment projects using state capital, but only less than 62 percent reported investment evaluation to MoPI in accordance with government's requirement.

Due to launching demand stimulus package worth $8 billion, with about 61 percent of capital through state investment and development, investment capital source from the public sector has increased dramatically over the first nine months of the year.

Out of total social investment capital of 483 trillion dong in first nine months, the state capital accounted for 36.1 percent (increasing 45.5 percent), non-state investment capital at 39.3 percent and foreign invested capital accounted for 24.7 percent.

However, according to verification of the Economic Committee of Congress, the state capital disbursement was estimated at 67 percent, basic construction investment capital was 54 percent; government bond capital was less than 47 percent. These showed that economic growth could still be achieved as a result of investment in width, but not coupled with quality.

Total social investment accounting for 42.2 percent of GDP compared to the plan of 39.5 percent, while the growth rate falling to only about 5.2 percent will cause the increase of the ICOR index to above the numbers 8 compared with the number of 6.66 last year. That's what Economic Committee requests the government to review when implementing investment projects from state budget for the economy in following years with the calculable consequences.

Thoi Bao Kinh Te Saigon - October 14, 2009