Vietnam has achieved results in its efforts to control inflation and maintain macro-economic stability in the first five months, a report from the Ministry of Planning and Investment said on June 4.

Speaking at a session of the Mid-year Consultative Group Meeting in Dong Ha City, Deputy Minister of Planning and Investment Cao Viet Sinh said Vietnam is on the right track in inflation control and macro-economic stabilisation.

Sinh said the CPI increase has slowed down since July last year to its lowest level in three years, with the month-on-month price index rising 1 percent in January, 1.37 percent in February, 0.16 percent in March, 0.05 percent in April and 0.18 percent in May.

"The Government has carefully implemented the monetary and credit policy with flexibility and effectiveness, resulting in better inflation control and macro-economic stability," said Sinh.

After three rounds of reduction, the deposit interest rate has decreased by 1-4 percent to 11 percent; lending interest rates for agriculture, rural trade, export and subsidiary trade have gone down to 13.5-15 percent from 18-19 percent.

Loan balances had increased to a level comparable with the beginning of the year while the exchange rate of the Vietnamese dong to the US dollar had stabilised.

Foreign currency liquidity in the system had improved; the balance of trade and the balance of payments had developed positively; foreign currency reserves had improved.

By May 21, the total means of payment had increased 4.47 percent compared to December 31 last year; the total balance of deposits at banks and credit organisations had increased by 5.42 percent.

Sinh said a strong export growth and trade deficit control has led to an improved trade balance and increased foreign currency reserves.

"Although the growth rate was only 4 percent in Q1, it was reasonable given the focus was placed on inflation control and economic stabilisation," said Sinh.

He said industrial production, especially processing, faced difficulties but had shown considerable progress during the last three months.

The agriculture sector, which had made efforts to overcome natural disasters and diseases to stabilise production, continued to grow, contributing to food security and improving living standards.

Total retail and services volume reached 952 trillion VND (45.6 billion USD), up 20.8 percent year-on-year; tourism grew well with 2.9 million foreign visitors, up by 17.5 percent.

These results were achieved as Vietnam 's economy still face difficulties and challenges due to the slow recovery of the global economy, the prolonged public debt in Europe , budget deficit in developed countries and instabilities and conflicts in the world in early 2012.

Sinh said Vietnam has set an overall socio-economic development goal for 2012 focusing on inflation control.

In the second half of the year, capital and output market issues will be solved step by step; employment and income as well as purchasing power will improve; price will increase faster then in the first half, but the annual inflation rate will be kept at 10 percent or lower, around 7-8 percent.

"However, it is not easy to achieve 6-6.5 percent economic growth while only 4 percent was achieved in Q1 and 4.5-4.6 percent in Q2," Sinh said.

Objectives set for 2012 include proactive control of inflation to keep it around 8 percent, macroeconomic stabilisation and ensuring social security.

Sinh said inclusive, flexible and aggressive implementation of Government resolutions will be going on focusing on proactive control of inflation and macroeconomic stabilisation; solving problems to facilitate production and business activities, to increase purchase power and sales but at the same time avoiding macroeconomic instability; ensuring social security, sustainable poverty reduction; strengthening defence and security and preventing corruption.

According to resident representative of the International Monetary Fund Sanjay Kalra at the IMF Board meeting on May 25, the executive directors commended the authorities' policies that have contributed to declining inflation, exchange rate stabilisation and rebuilding international reserves, and noted the authorities' determination to continue to pursue stability oriented policies.

They also noted, however, that vulnerability remains and emphasised the need to resist changing policies prematurely and accelerate structural reforms, said Sanjay.

He said the economy has slowed as tighter macroeconomic policies have yielded an effect and that risks to the outlook for 2012 include a loss of market confidence in the Government's policy orientation.

"A possible sharper-than-anticipated slowdown in Asian economies in response to a weakening European economy, or severe financial sector turmoil in Europe with global spillovers, would adversely affect Vietnam 's performance," Sanray said.

Domestically, a rebound of liquidity problems in weak banks could lead to a loss of confidence in the Vietnamese dong and renewed inflation.

"Maintaining public confidence is critical, and to this end government policies need to credibly prioritise stability and address weaknesses in the financial sector," said Sanjay. /.