Vietnam will increase minimum wage Oct 1st as inflation rises

HANOI, August 23, 2011 (AFP) - Vietnam will increase minimum wages by up to almost half in its major cities from October 1 in a bid to help workers cope with one of the world's highest levels of inflation.

In a statement late Monday the government said businesses in Hanoi and the southern economic hub of Ho Chi Minh City will have to pay at least two million dong a month ($95).

The rate will, for the first time, apply to both foreign-owned and Vietnamese firms, it said, boosting the basic wage by 29 percent at overseas companies and 48 percent at domestic firms.

Pay levels outside the major cities will be lower, although they are also to rise substantially.

But there are doubts about whether the higher wages will be enough to help workers cope with inflation that accelerated in July for the 11th straight month.

The consumer price index rose 22 percent last month compared with July 2010, according to official estimates in the communist country.

The state-controlled Vietnam General Confederation of Labour found that workers in Hanoi and Ho Chi Minh City were already earning between 1.8 million and 2.5 million dong per month but this was "quite low" in relation to soaring prices, the official Vietnam News Agency (VNA) reported last month.

The labour union has also said the number of strikes was soaring along with prices.

At the same time, businesses say wage increases will compound the challenges they face in a troubled economy.

VNA quoted Dang Phuong Dung, vice-chairwoman of the Vietnam Textile and Apparel Association, which represents a key sector of the economy, as saying higher wages would be a burden on firms already struggling with rising input costs.

Dung said unemployment will increase as a result.

Wage pressures will add to high import taxes and other factors making foreign investors have second thoughts about Vietnam, said an Asian diplomat who declined to be named.

"The top 10 investors in Vietnam are all thinking twice," he said recently.

Long focused on growth, the government this year shifted towards economic stabilisation of numerous imbalances that include a large trade deficit, high current account and budget deficits, and inefficient state spending as well as inflation.

The government aims to keep inflation at about 15 percent this year.