Scores struggle amid inflation in Vietnam

1st big downturn in nearly 20 years

HANOI - Even the ghosts are suffering from inflation in Vietnam this year.

August is the month when Buddhists ply the hungry ghosts of the dead with food and wine and cigarettes and honor them with paper offerings that represent the good things in life: cars, houses, motorbikes, stereo sets, fancy suits.

But like everything else in Vietnam, these brightly colored offerings have risen steeply in price, and shopkeepers say people are buying fewer gifts to burn for the dead.

With inflation rising to 27 percent last month - the highest in Asia - and food prices 74 percent above those a year ago, Vietnam is suffering its first serious downturn since it moved from a command economy to an open market nearly 20 years ago.

Last month, the government raised the price of gasoline by 31 percent to an all-time high of 19,000 dong ($1.19) per liter (or roughly $4.50 a gallon). Diesel and kerosene prices rose still higher. The country's fledgling stock market, which had been booming a year ago, has fallen in volume by 95 percent and is at a virtual standstill.

Squeezed on all sides, people are cutting back on food, limiting travel, looking for second jobs, delaying major purchases, and waiting for the cost of a wedding to go down before marrying.

Some village women who traveled to Hanoi to sell special homemade candies for the hungry ghost festival say they have not earned enough this year to return home.

Given this slowdown, Vietnam, Asia's youngest tiger, which had been growing by about 8 percent a year for the past decade, is scaling back its plans for growth and economic development.

Last month, the Asian Development Bank forecast that growth would slow to 6.5 percent this year. Some economists say even that figure is probably too high. Trade and current-account deficits have widened.

The mood in Vietnam, after years of upward mobility, is tense, said Kim N.B. Ninh, the Asia Foundation's country representative. "I think people are pessimistic," she said. "You sense a tougher environment, a more restricted environment, a more pessimistic environment."

Some are losing confidence in the ability of the government to manage the economy. And rumors of price increases have caused panic buying of fuel and rice.

In part, economists say, Vietnam is suffering from the worldwide economic downturn and from high inflation that has spread through Southeast Asia.

But they say the problems are also self-inflicted, the result of an overheated economy as Vietnam raced forward with inadequate safeguards. Too much capital, particularly from foreign investment, has collided with bottlenecks in infrastructure and capacity.

The education system, meanwhile, has produced too few skilled and semiskilled workers for Vietnam to move up quickly into more complex manufacturing industries. Factory workers who have been leading Vietnam's rise from poverty often are unable to sustain an urban life on a factory wage.

"Some people who have been moving from rural areas to seek jobs in industrial zones are deciding that it is not worth it, and people are moving home," said Ben Wilkinson, associate director of the Vietnam program at John F. Kennedy School of Government at Harvard.

After a steep reduction in the poverty rate from 58 percent of the population in 1993 to around 15 percent last year, some people - including those who had bought their first motorbike or mobile telephone - are slipping back again below the poverty line.

Prime Minister Nguyen Tan Dung said in May that the number of households going hungry had doubled in one year. Everywhere they turn these days, people in Vietnam see higher prices.

In the long term, most economists agree, Vietnam will continue the transformation it began in the early 1990s with a new policy of economic restructuring.