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HSBC believes the biggest risk facing Vietnam is the return of inflation should the governmentInflation may return if monetary policy is loosened aggressively ease monetary policy to support ailing sectors.

In its report released on March 4, the Hong Kong and Shanghai Banking Corporation (HSBC) said February prices were contained, falling to a rate of 7 percent year-on-year compared to 7.1 percent in January.

Core inflation, on the other hand, remained at 12.6 percent year-on-year, continuing January’s trend. February’s monthly inflation eased to 0.5 percent from January’s 0.9 percent. Food inflation rose slightly to 1.5 percent from 1.3 percent a month earlier.

When considered on a sequential basis, February’s food prices climbed 0.2 percent from 0.6 percent in January. HSBC said that after adjusting for Lunar New Year’s seasonal effect, the reading suggests consumers are currently behaving more conservatively.

The report also analysed the Master Plan on Economic Restructuring in 2013–2020 and its public investment, credit organisation, and state-owned enterprise restructuring priorities. HSBC approved of the government acknowledging the fundamental challenges confronting the economy.

It noted, however, that as in the case of 2012’s other promised reforms, the plan lacks implementation details. The plan aims to “perfect the socialist-orientated market regime; create a system of reasonable, stable, and long-term economic growth drivers—especially tax incentives and other investment-encouraging measures; promote the distribution and use of social resources for sectors and products with competitive advantages; and improve labour productivity and competitiveness,” said HSBC.

Concerning SOE restructuring, the report emphasised the plan’s outlined steps are more goal-oriented than actionable reforms. The government wants to classify and reorganise SOEs working in military industries, monopoly industries, primary goods and services supply, and advanced technologies. It is expected to promote the equitisation and diversification of SOEs where the state’s full ownership is unnecessary.

The restructuring plan requires SOEs to restructure their investments and recalibrate activity to focus on core businesses, divesting side businesses and joint-stock companies in which the state does not need to be the dominant shareholder.

As a whole, HSBC judged Vietnam is indeed making steady progress in building the foundations for further reforms citing its restrained support to inefficient enterprises and the stability of inflation and other key economic indicators such as the trade balance and foreign reserves.


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