“Top priority will be given to combating runaway inflation,” the PM told Cabinet members.

He said that it is essential to have a tight but flexible monetary policy to ensure the liquidity for credit organisations. He asked the State Bank of Vietnam to keep the exchange rates flexible according to the market law of supply and demand.

He stressed the need to further reduce public spending, stop unnecessary projects and implement social welfare policies to assist 58 districts where a half of the total households live under the poverty line.

The PM asked cities and provinces to implement flood-prevention projects and post-disaster relief strategies. He also asked the press to give a true picture of the country’s socio-economic situation.

At the meeting, Le Duc Thuy, chairman of the National Advisory Council for Finance and Monetary Policies who is former Governor of the State Bank of Vietnam, said that the Government must make a greater effort to keep in check runaway inflation without jolting the market.

Council member Truong Dinh Tuyen, who is former Minister of Trade, said that the best way for Vietnam to curb inflation is to tighten monetary policy, run a flexible exchange rate and cut public spending.

The State Bank of Vietnam Governor Nguyen Van Giau affirmed that the central bank will scrutinise the liquidity of commercial banks and credit organisations.

Inflation down

At a press briefing in Hanoi on July 2, Nguyen Xuan Phuc, Minister and Chairman of the Government Office, said that in the first six months of this year, Vietnam imported 6.813 million tonnes of petrol and oil, an increase of nearly 300,000 tonnes from a year ago. The Government spent nearly VND11 trillion on subsidies for petrol importers to maintain an adequate supply of this strategic product for production and consumption.

Mr Phuc said that while drafting plans for 2008, the Government did not expect wild fluctuations in the global market, particularly for oil and food. Oil prices in late June 2008 increased to around US$140/barrel compared to the estimated price of US$64/barrel. Similarly, food shot up to over US$1,000/tonne compared to the expected level of US$320/tonne.

Price rises and difficulties caused by natural disasters and epidemics prompted inflation to rise 18.44 percent in the first half of the year.

However, inflation began to fall slightly after the Government’s measures were put in place. The consumer price index in June increased slightly by 2.14 percent compared to a record high of 3.91 percent in May.