WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? Research about What is the relationship between inflation in Cambodia and Inflation in Vietnam and Thailand? In Maravatey, Khut Chanpanhatey, Tep Czarevna, Keo Lypanhary, Khov Suyhung CamEd Business School Deadline: 30 November 2017
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 2 Contents: Page i. Title 1. Summary 2. Background 3. Date Collection and Methodology 4. Results 4.1. Discuss about inflation between Cambodia and Thailand • GDP deflator • Consumer Price Index (CPI) • Interest rate and exchange rate 4.2. Study about inflation between Cambodia and Vietnam • GDP deflator • Consumer Price Index (CPI) • Interest rate and exchange rate 4.3. The reasons which cause inflation • VAT increase • Firm’s production cost increase • Price of crude oil and other imported include commodities increase, food staffs and beverage • Too much money supply 4.4. Policy for inflation issue • Fiscal Policy v Expansionary v Contraction • Monetary policy v Expansionary v Contractionary 5. Conclusion 6. Appendices 7. Referenc
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 3 1. Summary
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 4 2. Background In every country around the world, all are having inflation such as Cambodia, Vietnam, Thailand, Singapore, United states, and other country. In developing country, have higher inflation than other country like developed country. Cambodia is developing country that have high inflation in each year. Cambodia, Vietnam, and Thailand all this 3 country have relationships with each other. This 3 country, trade the productivity, exchange rate, trading food, fruit and other thing. According to Chankreusna IENG said, “Cambodia experienced very high inflation during global financial crisis which severely slower down economic growth but managed to stabilize inflation in last 5 years.” p. 1(Determinants of inflation in Cambodia”, 31, 2017). At the time of Cambodia, have high inflation it will effect to other country that have relationship with. The government will method to prevented this high inflation in order to make it become normal. Moreover, all of 3 country have the inflation cause of interest rate, more expense, money supply, and exchange rate, etc. In order to, the policy to decrease the inflation have some method to prevent this problem like fiscal policy, monetary policy and government spending. When inflation high is mean that you cannot buy goods as much as like before. The effect when inflation it will happened like exchange rate is downward and cannot compared with the other currencies.
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 5 3. Data Collective and Methodology • Data Collective: Here are some data from December 2004 to December 2016. Based on the research we have found some Cambodia data include, headline inflation, core inflation, food inflation, narrow money, nominal exchange rate, government revenue, government expenditure and real GDP are obtained from the National Bank of Cambodia, Institute of Development Studies, world bank group, Ministry of Planning of Cambodia and other economists in websites of Cambodia. And international headline inflation and international food inflation date are collected from IMF, bureau of trade and economic indices (Thailand), General Statistic of Vietnam and some other economists in websites of Thailand and Vietnam. Moreover, the data has shown that there are two spikes in food inflation -32.39% and -34.6%. • Methodology: In macroeconomic we can know the how to calculate the inflation rate if you want to in one country or you want to, but if you want to calculate the inflation in one country we must to know the Consumer Price index or we can call CPI. One more to calculate CPI we must to know new index minus old index divide by old index and then if we know the CPI already we can calculate the inflation. The formula is: !”#$%;'(” *%&+=-.!/?-.!1-.!1 -.!=2+3 ‘”4+5?6$4 ‘”4+56$4 ‘”4+5?100 According to National Statistical Systems in Cambodia said the value of CPI in 2016 was increas 168 to compared with the value if CPI in 2017 was increse 169,7 . CPI increase by the main of food like rice beef pork oil and vegetable. For example in from december 2015 to december 2016 price of rice was increase by 3.6% and july 2016 to july 2017 the value price of rice was increase 2.2%. In the same way, the CPI increase 106.83 in September of 2017. (Vietnam Consumer Price Index CPI) and increase 100.17 in 2016. Inddition, in july 2017 CPI was increase 101.22 and in 2016 was 106.93.( Thailand Consumer Price Index (CPI).
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 6 4. Result 4.1. Discuss about inflation between Cambodia and Thailand In the developing country, such as Thailand, Vietnam, Cambodia, Malaysia, Laos, and other countries are effect of inflation. For the developed countries are also effect of inflation too. The effect of inflation high or low is depending on purchasing power and demand of people in that country. Some countries have high inflation in food price, clothing price, housing price, crude oil, and other thing. Cambodia have inflation cause of Cambodia use the amount of US dollar ($) to import the product from other country and purchasing power. According to idexmundi, “Cambodia have high inflation in 1995 11.52%, in 1998 the inflation decrease to 10.01% and in 2008 the inflation increase to 12.25%”. Unfortunately, Cambodia have inflation in 2008 increase to 12.25%, cause of the price of product in the international markets is high. The increase in the international food price and energy price that can be affect to the local market Cambodia. Based on National Bank of Cambodia, “In the early part of the year, the annual inflation rate continued the steep upward trend observed since the last quarter of 2008 to peak at a record high of 25.7% in May 2008”. (Annual Report, 2008, p. 3). Furthermore, interest rate and exchange also cause of having inflation. The amount of US dollar ($) against the Cambodian riel. The normal exchange rate in Cambodian riel exchange to US dollar is 4,000 riels per dollar. The decrease of the national currency of demand that will have inflation. For instant, 1 US dollar ($) exchange to Cambodian riel 4,100 that it must be has inflationary in exchange rate. The increase on the national currency of demand that will have less inflation. For example, 4,030 riels to 1 US dollar ($). According to National Bank of Cambodia, “The increased demand for the national currency during the harvest season drove up the value of the riel, when the average rate for the last two months of the year slowed down to 4,088 riels to a US dollar.” (Annual Report, 2008, p. 5). Thailand is the country that also have high inflation. The highest inflation in Thailand was happened in 2008 that cause of Asian financial crisis and the oil rose price is increase since 2006 until the mid-2008. In addition, this problem can make other commodity increase the price. At that time, all Asian countries faced with inflation. So, the food price, product price, crude oil price, commodity price and other thing are increase. In 2008, the annual inflation rate is 5.48%. The exchange rate in Thailand 2016 is exchange from Thai baht and US dollar. Based on PoundSterling Live, “from US dollar to Thai Bahts 1USD =34.5896 THB and from Thai Bahts to US dollar 0.0289 US dollar = 1 THB.”
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 7 Moreover, in 2008 all Thailand people are less spending and more saving because at that time Thailand faced with the inflation all of commodities are expensive. 4.2. Study about inflation between Cambodia and Vietnam
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 8 4.3. The reason which cause inflation Every country always the inflation is mean that the price level for goods and service in this country increase than last time such as housing and food. There are the main causes of inflation the like Fuel oil price and food in the world market, monetary inflation, exchange rate, demand pull and interest rate. • Fuel oil and food price in the world market According to National bank of Cambodia in 2016, for food price during the first half of 2016, world food prices increased an average of 0.5% because of rising sugar vegetable and oil. For 2016, the increase in vegetable and oil prices is due to worries and rising demand in the world. According to Radio Free Asia in 2011, Market prices have increased especially is fuel prices affect 30% to the people who live in Cambodia, this means that previously, 10,000 Riel can buy 2-liter gasoline but when the inflation increased 10,000 Riel can only buy 1 liter of gasoline. If we look at Thai the inflation of oil from 2000 to 2008, was increased that’s why the price of the bus ticket motorcycle or taxi was increased too. • Exchange rate However, the inflation is the fact to affect the exchange rate. For the country that has the lower inflation rate is mean that the purchasing power increased and rise in currency value but for the other country that has the higher inflation the purchasing power was decreased and fall in currency. (Investopedia Academy). For example, usually Thai baht is 33.10 per dollar but in 2008 Thai baht (THB) is 37 baht per dollar. In 2014 the exchange rate between Cambodia (Riels) is 4,040 riels per dollar but in 2015 the exchange rate was rise is 4,060 riels per dollar. • Demand pull In 2017 the international brand cafés arrived in Cambodia. All brands include Starbucks, Caffeine, American Coffee and local coffee such as Brown and Pear coffee. The growing number of coffee businesses in Cambodia has increased demand for coffee beans by hundreds of tons per year and domestic raw coffee supplies cannot meet the strong demand. This is the reason why coffee in Cambodia has expensive. Cambodia is famous as an agricultural country, but in terms of Cambodian vegetables, only about half of the country’s demand is about 930,000 tons. In addition, over 50% of Vietnam’s vegetables need to be imported to meet domestic demand. Seasonal
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 9 cultivation, low productivity and unstable crops, lack of infrastructure, lack of access to markets. Marketing has become an obstacle to local vegetable traffic. (Cambonomist.com). One more if we look at the Vietnam 2016, this country imports the soybeans from the United State nearly 1.5 million tons and soybeans meal 5.1 million tons. (World Markets and trade, 2017). Vietnam bought soybeans and soybeans meal because want to produce the protein feed. 4.4. Policy for inflation issue v Fiscal Policy According to Council for the development of Cambodia the objectives of Royal Government’s fiscal policy are to maintain a sustainable fiscal balance with gradual increases in budget allocation for social and economic sectors by limiting and rationalizing public expenditure and by broadening tax base and by strengthening the customs and tax administration to collect additional revues. Accelerate the stimulation of the economy in such a way as to increase the people’s income levels and arrest the economic slowdown. Moreover, Thailand used fiscal policy of the factors behind the rapid growth is the macroeconomic stability ensured by the conservative fiscal and monetary policies. As we have shown, inflation was always kept low and when the public sectors debt approached dangerous levels in the early 1980s and around 2002 corrective action was taken. Over time, fiscal policy has consistently been used to stabilize the economy in the face of external and internal shocks and fiscal space was used up more, in this period, for the purpose of economics stabilization rather than for development or for poverty reduction or eradication. Other, fiscal policy was devoted to correcting macroeconomic instability while the monetary policy was very constrained by financial fragility. For Vietnam used fiscal policy and management in the past 20 years have enable prioritized government spending to deliver public services in Vietnam, particularly among the most disadvantaged. However, new challenges have emerged including fiscal pressures from declining revenue (from 25 percent to 20 percent of GDP between 2009 and 2014), and buildup of contingent liabilities, a large investment requiring medium term planning and more robust appraisal and new sources of financing, increased demand for fiscal information that impacts on economic and credit ratings, increased decentralization of public service delivery ( local spending is more than 50 percent of total) and greater demand for public sector performance. As one important part of stabilization program, tight fiscal policy was adopted to constrain the
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 10 budget deficit. The current expenditure of the government was curtailed to comply with the scope of fiscal revenue and fiscal deficits dropped sharply and were tightly controlled. v Monetary Policy According to National Bank of Cambodia, there is one policy that the National Bank of Cambodia is to determine and direct is monetary policy and maintaining the price stability to facilitate economic development. Since prudent conduct of monetary policy, inflation has been managed at low rate with an annual average of less than 5 percent and the effective conduct of monetary policy is constrained and the National Bank of Cambodia loses its ability to act as the lender of last resort. However, the monetary policy used achieve price stability is setting reserve requirement rate and conducing foreign exchange intervention. Moreover, the National Bank of Cambodia is developing additional monetary policy through issuing Negotiable Certificates of Deposit (NCDs), developing interbank and monetary markets, promoting the use of riel. According to nationalmultimedia.com, there are two main policies involving the economy, which are fiscal policy and monetary policy. Fiscal policy is used by government and monetary policy is used by the central bank. The way each policy is used will have different effects on the economy. Therefore, it is important for business to analysis which policy will be used in what way. Actually, Thailand used monetary policy to deal inflation problem. Monetary policy in Thailand can reduce inflation by reducing the demand for goods and services. In the Thai economy, inflation is caused by increasing energy prices and wages, which is supply-side. That means prices are increased because of costs increasing. Inflation caused by cost-push will lead to an increase in prices and decrease in GDP. Reducing inflation by monetary policy is done by decreasing the money supply, so interest rates will rise and investment will decline. For Vietnam is also not different from Thailand. Vietnam also used monetary policy to solve inflation problem too. Depend on scribe.com, first, the constant increase of the money supply in circulation and outstanding loans dating from 2004 were major reasons for high inflation. The Government must closely to control payment and loans, tightened monetary policy, however, should ensure the economy’s liquidity and the operation of banks and credit institutions. It should also create conditions for domestic production and export activity. Second, the Government would cut down on expenses and public investments relying on the State Budget. Third, development of agriculture and industry would take priority so as to overcome consequences resulting from inclement weather and epidemics and to increase food
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 11 productivity. Fourth, supply and demand of goods must be ensured to promote exports and reduce the trade deficit. Fifth, thrift in production and consumption was encouraged. Businesses must re-check expenses to reduce prices. Sixth, market management should be further supervised to avoid goods speculation, especially in regards to essential items such as petrol, cement, steel, medicines and foods. Finally, to help people, especially the poor, the Government would implement social welfare policies and increase salary and allowances.
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 12 5. Conclusion As the result and data above Cambodia, Vietnam and Thailand are having good relationship with each other. All of this 3 countries are having inflation in 2008. Cause of that year have Asian Financial crisis. Cambodia, Vietnam and Thailand have high inflation in 2008. At that year, interest rate and exchange rate, food price, crude oil, commodity price and other things are increase. So, people less consumption and more saving because all commodities are expensive. Cambodia, Vietnam and Thailand are trade the product, food and other things with each other. The inflation increase or decrease is depending on the purchasing power, demand pull, food price and fuel oil. However, the increasing on the national currency of demand that will cause less inflation. In order to, decrease the inflation government have to use policy to prevent. The main policy that the government have to use in prevented the high inflations are fiscal policy and monetary policy. Thus, this 2 method is use by government and central bank. Fiscal policy is use by government and and monetary policy is use by central bank in order to help citizen.
WHAT IS THE RELATIONSHIP BETWEEN INFLATION IN CAMBODIA AND INFLATION IN VIETNAM AND THAILAND? 13 6. Appendices: 4.1. Discuss about inflation between Cambodia and Thailand: Exchange Rate Cambodian riel against US dollar
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