Feeling the mounting pressure of inflation, Asian countries are now waging an all-out war against soaring prices.
In May, inflation in Vietnam surged to 25 percent year-on-year, with prices for rice and other grains shooting up 68 percent, according to Vietnam's bureau of statistics.
The high inflation was also blamed for the devaluation of Vietnam dong in the local black market. Plus other bad economic news like a widening trade deficit and a tanked stock market, Vietnam's economic performance even caused doubts of an economic crisis among economists.
As a matter of fact, other Asian economies, except Japan, are facing the same pressure of inflation. In May, Indonesia reported inflation over 10 percent, the Philippines, 9.6 percent, India, 8 percent and Thailand, 7.6 percent. Even inflation stalwart like Singapore reported a 26-year high of 7.5 percent.
The situation coincided with Asian Development Bank's (ADB) warning recently. Citing inflation "the biggest risk" for Asia in the future several years, the ADB predicted that Asia's inflation would hit a 10-year-high of 5.1 percent in 2008, or maybe higher, and could threaten economic growth in the region.
The ADB attributed the high inflation in the region mainly to the soaring prices of oil and food-related products. Statistics show that oil price has surpassed 140 dollars per barrel this month, double the price a year ago. In the meantime, global agricultural commodity prices have been shooting up more than 8 percent this year, after a 41 percent rise in 2007.
The loosened monetary policy adopted by Asian economies in the past years, geared at speeding up economic growth, has also led tothe high inflation, said economists.
The ADB called on Asian monetary and fiscal authorities to "recognize inflation as a very major concern" and take all steps to rein in the inflation.
"Asia has had a very good growth story. We need to focus on inflationary pressure, otherwise the growth story will be endangered," warned Rajat Nag, managing director general of the ADB.
Rajat also said that if inflation was not tamed, it would hurt Asia's poor.
"Inflation is the worst form of taxation on the poor. Inflation hurts the poor much more than it hurts the rich," he said.
Despite the success of some countries' economies in recent years, the Asia-Pacific region remains home to 1.5 billion poor people, two-thirds of the world's total who live on less than two U.S. dollars a day.
Asian economies bear the same thoughts and have listed curbing inflation high priority.
In Vietnam, the central bank has raised the interest rates three times this year and said further tightening of monetary policy would be adopted in the second half of this year. Besides, the government decided to cut spending and so far, about 1,000 public-invested projects have been canceled or postponed nationwide.
The government has also decided to closely monitor credit system in terms of credit quality, lending for realty investment, business on valuable papers, consumer loans, and other trading on foreign currencies and gold.
Similar policies were adopted almost everywhere in Asia. The Indonesia central bank raised the benchmark interest rate by 25 basis points to 8.5 percent this month. In the Philippines, in addition to the interest rates rise, the government has also provided subsidy to the poor people in the country to ease the impact of high prices on them.
But when and how effective the measures will be is still a question mark as the monetary policies will have a time lag, which means that it will take a longer period of time to see the effect of these policies, economists said.
Another problem poses. Policy makers in Asia need to balance high inflation against the danger that further tightening will drastically brake domestic growth, said economists.
Though economists are optimistic about the region's long-term prospects and describing the present economic woes as a consequence of the "growing pain" of a emerging market, many Asian economies have lowered their economic growth expectations.
Vietnam is predicting economic growth will slow to 7-7.5 percent for 2009 from last year's 8.5 percent. The Philippines lowered this year's economic growth target from previous 6.3-7 percent to 5.7-6.5 percent.
How long the pain will prevail will depend on the extent to which the government implement the right fiscal and monetary policies, said an analyst.
Source: Xinhua
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