According to the Ministry of Industry and Trade, the information on price of electricity and petroleum products should be kept confidential by the government.
Policy opposes global trend
Until some years ago, the State Bank treated their information as a national secret, and did not disclose to the public. In 2007, the State Bank pushed up credit growth to 50% YoY, causing a boom in inflation (several tens of percent). Few years later, all information about money market and foreign exchange continued to remain highly confidential. As a result, inflation and foreign exchange has spiraled out of control.
Over the last five years, the State Bank has been publishing its money policy orientation at the beginning of each year, such as it targets of credit growth around 14-16%/year. The targeted inflation has also been set at 4% for most recent years. The ‘anticipated inflation’ has rarely happened thanks to this transparency. It is clear that ‘anticipated inflation’ is the result of unsuitable macro policy of the government, not the result of people’s sensitivity about price of electricity or petroleum products as informed by the Ministry of Industry and Trade.
The money policy has been transparent, although domestic and foreign trade activities remain sensitive about information disclosure. So then, for what reason is the price of electricity and petroleum products treated as confidential? This policy is opposed to global trend and goes against peoples’ expectations about a creative government.
Cost of confidentiality
There are many international research studies about the impact of ‘anticipated price change’ and ‘un-anticipated price shock’. For example, the public announcement of targeted credit growth of 14%/year has been helping enterprises and banks to manage their activities better. Further, based on this 14% credit growth target, a suitable market price level will also automatically be established. This mechanism not only helps achieve the targeted inflation but also mitigates the negative impact of the policy on economic growth.
The State Bank can create an ‘un-anticipated change’ by silently increasing liquidity. Later, when people hear of that policy, inflation will rocket suddenly. Note that, before the inflation surge, enterprises and banks do not know anything, they keep doing their normal business expansion and investments. The ‘un-anticipated change’ helps to create a short-term growth in GDP and supports the government for a short-term outlook.
Now, is the Ministry of Industry and Trade trying to use a ‘tactic’ to create an illusion for people when it suggests applying confidential mechanism on price of electricity and petroleum products? From experiences of other countries, this ‘tactic’ is only successful in fooling people one or two times but not effective in the long run. Consequently, any later action of the government can be mistrusted by the people.
As a result, when the Ministry of Industry and Trade announces that it will increase the electricity price by about 8.3%, a car manufacturer will never fully believe this information as he thinks it could go higher and as a result revise a new high selling price. The purpose of this higher selling price is meant to reflect on later higher electricity price increase. In the long term, the un-anticipated price increase will significantly impact both inflation and economic growth.
Unfair treatment in different economic sectors
The un-anticipated price change also leads to unfair treatment in different economic sectors. Most private enterprises have been funded through banks, based on floating interest rate mechanism. The ‘confidential price increase’ is not known by enterprises, hence they keep expanding their businesses and borrowing from banks. Similarly, the farmer continues to innocently borrow from banks to grow his new crop.
Then later, when the government suddenly increases the price of electricity and petroleum products, their loan amount automatically increases as the floating interest rate is higher. Further, no one knows whether there is a group of people or enterprises that are very close to the government, who are made aware of this price increase ahead of others and are already well prepared to take advantage from this change.
The Ministry of Industry and Trade has always been assuring that change in price of electricity and petroleum products will not impact inflation target. But we know for sure that this price increase will unfairly impact different economic sectors. The ‘confidential price increase policy’ looks like a dinosaur which had its tail cut a long time ago but was not even aware it was cut.
However, Vietnamese enterprises are not dinosaurs that are strong enough to bear the price shock. Most of them are small micro enterprises. The confidential price increase is also like plucking feathers off a duck without allowing the duck to scream. While at the same time, the government expects Vietnamese enterprises to be like cranes that flock together when flying towards the big sea.