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Minimum wage freeze to hit poorest

Vietnam's economy looks set to hit the buffers

Minimum wage freeze to hit poorest
Poor Vietnamese complain they are seeing wages stagnate as prices surge reporter, Ho Chi Minh City

October 23, 2012

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For the past seven years, Phan Thi Hoa Xuan and her 21-year-old son have worked in a private shoe factory in Ho Chi Minh City. They earn a combined four million dong (US$190) per month in a country that recorded inflation above 18 percent last year and is expected to see prices of household goods climb a further eight percent in 2012.

“We can only afford to cover our basic needs and rent a six-square-meter apartment,” says Xuan.

Although Vietnam achieved middle-income status a few years ago, millions of people like Xuan and her son are increasingly feeling the effects of an economy which has been threatening structural problems for a while and finally looks to be hitting the buffers.

Economic growth is expected to reach just above five percent this year, the lowest rate since 1999 and widely considered by most economists to be insufficient to pull more people out of poverty.

Economists call it the middle-income trap. Wages rise, competitiveness falls, economic growth slows and countries get stuck in the middle with many people remaining trapped at the bottom.

Last week, the government announced it probably won’t have sufficient funds to introduce a rise in the minimum wage from 1.05 million dong ($50) to 1.3 million ($62) from May 1, a move which would cost money to pay state salaries but which was also due to take effect in the private sector.

Many salaries are calculated as a factor multiplied by the minimum wage meaning the measure would raise the salaries of 22 million people, including seven million state workers.

But a pay increase would cost the state $2.88 billion which it does not have, Finance Minister Vuong Dinh Hue told the National Assembly in Hanoi last week.

“We are really disappointed with the minister’s statement about not increasing the minimum wage,” says Do Thi Duyen, 30, who earns five million dong working at a raw food company in Ho Chi Minh City.

She adds though that even if there were a raise, it would not track the steep increases in prices of everyday necessities like fuel and food. The government recently acknowledged that the current minimum wage only covers 60 percent of daily expenses for the average worker.

“It is clear that government officials who travel by car, work in air-conditioned buildings and live in comfortable houses do not know what a miserable life poor people have,” says Duyen.

National Assembly Chairman Nguyen Sinh Hung said recently that the government should cut other parts of the state budget so it can raise the minimum wage to help poorly paid state workers and people like Duyen.

“We often call for boosting consumer spending but how can people go to the market when they have no money?” He said.

Many economists view Vietnam’s current economic woes as structural and slow-burning. The dong has been in freefall for years amid low confidence in the currency which in turn has driven inflation causing prices to rise, people to struggle to afford them and to respond by calling for further wage hikes which further fuel inflation.

In the wake of these problems, Prime Minister Nguyen Tan Dung issued a rare apology in parliament yesterday over his government's handling of the economy in recent years.

“I seriously admit the large political responsibility of the head of the government and would like to apologize to the National Assembly, the Party and the people for all the government’s weaknesses and shortcomings,” he said.

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