Vietnam has reported an inflation rate of 27.04 per cent in July, the highest year-on-year increase since 1991, when the country was deep in economic turmoil. August’s figures are expected to be higher due to fuel price hikes (+36 per cent) at the end of July. This has hit people on fixed incomes hard but business has not been spared. Manufacturing and the service sector have been negatively affected because of lower profit margins or even losses.
The problem is not restricted to a few countries. Governments elected in 2008 in South Korea, Taiwan and Thailand have had to revise their electoral campaign promises to pump new funds into infrastructure in order to rearrange their priorities as a result of higher prices.
For example, Thai Prime Minister Samak Sundaravej who pledged to invest US$ 50 billion on infrastructure over four years, has been able so far only to adopt a fiscal stimulus package that included items such as subsidised public transport fares and residential electricity.
South Korean President Lee Mjung-bak, who also took office just recently, pledged large-scale infrastructure investments, including a US billion cross-country canal. But with the economy now declining, the canal has been shelved in favour of a US$ 10 billion stimulus package comprised of tax rebates and new subsidies for low-income people.
In Taiwan, Ma Ying-jeou spoke during his election campaign of 12 grand projects, costing US$ 130 billions in total, that he would push if he won the presidency. Whilst the start of those projects next year has not been postponed, his government is now focused on a US$ 37 billion programme to prop up domestic demand and offset inflation.
In India in June widespread street protests were caused by higher fuel prices, which are still kept below cost.
In April, the Malaysian government cancelled a US$ 2.5 billion bullet-train line to Singapore in favour of a US$ 1.3 billion move to stockpile food and increase production of rice, fruit and vegetables.
Inflation in Japan accelerated in June to 1.9 per cent, the fastest in 15 years.
All this might be useful on the shorts run but experts note however that they are falling far short of the mark against the steady rise in the cost of energy, raw materials and food.
Funds allocated for such short term imperatives are siphoning off huge amounts of resources that would otherwise be invested in economic development plans.
Still the situation is forcing many governments to re-appraise their respective agricultural sectors, which had been largely neglected until now, as a way to cope with demands for food.