VZCZCXRO3021
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0846 2040852
ZNR UUUUU ZZH
P 220852Z JUL 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8162
INFO RUEHHM/AMCONSUL HO CHI MINH 4931
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS HANOI 000846
SENSITIVE
SIPDIS
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
STATE FOR EEB/IFD
E.O. 12958: N/A
TAGS: EFIN EAID ECON ETRD VM
SUBJECT: GAS PRICE INCREASE FUELS INFLATION, UNHAPPINESS
1. (U) The GVN announced new fuel price increases on Monday, July
21. Gasoline prices went up 31 percent, diesel up 14 percent, and
petroleum products kerosene and mazut went up 44 and 37 percent
respectively. The increase follows an 11 percent hike on gas and a
36 percent increase on diesel implemented last February. The
government-controlled media quoted Minister of Finance Vu Van Ninh
as saying the increase was both to discourage smuggling to countries
where fuel is more expensive and to ease pressure on the state
budget.
2. (U) Analysts are predicting that the move will increase headline
inflation 1 to 2 percent, although most seem to be maintaining the
stance that overall inflation will still ease towards the end of the
year. Bond yields skyrocketed by up to 200 basis points following
the announcement, but sellers were hard to come by. On the currency
black market, demand for dollars spiked, pushing the dollar rate
back up to 17,500 dong from around 16,800, while the official
exchange rate is about 16,600. The stock market, showing newfound
sensitivity to the price of oil, dropped to 470 after a series of
gains in the weeks prior.
3. (SBU) Comment: The hike came as a surprise. The government had
previously been saying it would not raise prices for the rest of the
year. Moreover, many observers thought the GVN would be reluctant to
raise prices in light of record inflation numbers. Trying to
maintain artificially low fuel prices in the face of spiking global
oil prices, however, is undoubtedly an expensive subsidy difficult
to afford at a time when the GVN is trying to rein in fiscal
spending. This price hike will contribute to Vietnam's already high
inflation, but may not register in the monthly numbers until the
August figures are released.
4. (SBU) Continued comment: Naturally, the public is not happy
about the blow to the wallet caused by an overnight nearly one-third
price increase. For months it has felt the steady pain of high
prices for food and fuel. Vietnam is already facing 26 percent
y-o-y inflation. While the GVN is surely aware of the protests in
neighboring Burma not long ago, we expect its own calculations are
that the Vietnamese people will bear the pain. Rather than take to
the streets, the motorbike-loving populace may be forced to cut down
on nightly joy riding. End comment.
MICHALAK