HANOI (AFP) — Vietnam's economy, until recently a darling of foreign investors, has overheated and may be sliding into a boom-and-bust cycle that could require IMF-style assistance, analysts say.
The economy widely hailed last year as Asia's next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector.
Credit rating agencies Standard & Poor's, Fitch and Moody's and several investment banks have revised downward their outlooks for Vietnam at a time when the spectre of a US recession could spell global trouble.
Aseambankers Research said "the worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund for help."
Analyst Adam Le Mesurier wrote for consultancy DSG Asia that "an 'IMF programme' style policy response will be needed within six months," including monetary and fiscal tightening and a dong currency devaluation."
Many investors and donors in Vietnam remain upbeat about the market of 86 million, pointing to strong exports -- including of food and oil -- investment inflows, growing tourism, and the potential of its young workforce.
"It's too easy to get excited and claim that Vietnam has gone from poster child to problem child," said EU chief country representative Sean Doyle.
"But I'm not sure it's very wise and very balanced ... Vietnam, if it can keep steady, stick with the right policies, will be attractive."
Nonetheless, the turnaround in investor perception has been stunning.
Communist Vietnam's 2007 entry into the World Trade Organisation fuelled enthusiasm for the low-wage "mini-China," bringing an influx of foreign cash.
Domestic investors gambled on a sky-rocketing stock exchange, the government went on a spending spree, and banks lent freely, fuelling rapid credit growth.
The wheels started to come off about half a year ago, when inflation hit double digits as the economy tried to digest six billion dollars in foreign direct investment (FDI) disbursed last year, or 8.4 percent of GDP.
Since the start of the year prices have galloped, driven by global food and energy costs, to 25 percent year-on-year inflation in May. Wage demands sparked 300 labour strikes in the first quarter alone.
"The wage-price spiral that appears to be beginning, if it becomes embedded, could make matters much worse," said an HSBC report that predicted a rise to 30 percent inflation amid hoarding of commodities.
Another alarm bell sounded when surging imports drove the trade deficit to 14.4 billion dollars in May, compared to 12 billion dollars for all of 2007.
The stock market has tumbled amid tighter credit and falling investor confidence, turning from the world's best to worst performing bourse. Last week it crashed below 400 points, from its high of over 1,100 in March 2007.
Many investors have bought gold or offloaded their value-losing dong for greenbacks, briefly sending the black market rate in Vietnam to 18,500 to the dollar last week, against the official rate of around 16,000.
Standard Chartered Bank said recently that the "Vietnamese dong has come under downward pressure, and such pressure is likely to persist until solid improvement is seen in the trade balance."
Some observers now fear a banking crisis amid tighter liquidity, depositor-flight and non-performing loans.
"Urgent action is required in the financial sector," said Michael Pease, chairman of the Vietnam Business Forum. "Vulnerability of some financial institutions threatens not just the domestic financial sector but also the confidence of foreign investors."
Vietnam's government -- which has adopted a fight-inflation-first strategy and pledged other economic fixes -- has lowered its 2008 economic growth target to 7 percent from last year's blistering 8.5 percent.
IMF country chief Benedict Bingham has suggested Vietnam cool its "overheated" economy with higher interest rates and public spending cuts, freeing up of the exchange rate and accelerated reforms of its state-owned enterprises.
While Bingham said the IMF was "encouraged" by government plans to fix the economy, he called for "a concrete and convincing policy package that will bolster investor confidence and restore macroeconomic stability."
The economy widely hailed last year as Asia's next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector.
Credit rating agencies Standard & Poor's, Fitch and Moody's and several investment banks have revised downward their outlooks for Vietnam at a time when the spectre of a US recession could spell global trouble.
Aseambankers Research said "the worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund for help."
Analyst Adam Le Mesurier wrote for consultancy DSG Asia that "an 'IMF programme' style policy response will be needed within six months," including monetary and fiscal tightening and a dong currency devaluation."
Many investors and donors in Vietnam remain upbeat about the market of 86 million, pointing to strong exports -- including of food and oil -- investment inflows, growing tourism, and the potential of its young workforce.
"It's too easy to get excited and claim that Vietnam has gone from poster child to problem child," said EU chief country representative Sean Doyle.
"But I'm not sure it's very wise and very balanced ... Vietnam, if it can keep steady, stick with the right policies, will be attractive."
Nonetheless, the turnaround in investor perception has been stunning.
Communist Vietnam's 2007 entry into the World Trade Organisation fuelled enthusiasm for the low-wage "mini-China," bringing an influx of foreign cash.
Domestic investors gambled on a sky-rocketing stock exchange, the government went on a spending spree, and banks lent freely, fuelling rapid credit growth.
The wheels started to come off about half a year ago, when inflation hit double digits as the economy tried to digest six billion dollars in foreign direct investment (FDI) disbursed last year, or 8.4 percent of GDP.
Since the start of the year prices have galloped, driven by global food and energy costs, to 25 percent year-on-year inflation in May. Wage demands sparked 300 labour strikes in the first quarter alone.
"The wage-price spiral that appears to be beginning, if it becomes embedded, could make matters much worse," said an HSBC report that predicted a rise to 30 percent inflation amid hoarding of commodities.
Another alarm bell sounded when surging imports drove the trade deficit to 14.4 billion dollars in May, compared to 12 billion dollars for all of 2007.
The stock market has tumbled amid tighter credit and falling investor confidence, turning from the world's best to worst performing bourse. Last week it crashed below 400 points, from its high of over 1,100 in March 2007.
Many investors have bought gold or offloaded their value-losing dong for greenbacks, briefly sending the black market rate in Vietnam to 18,500 to the dollar last week, against the official rate of around 16,000.
Standard Chartered Bank said recently that the "Vietnamese dong has come under downward pressure, and such pressure is likely to persist until solid improvement is seen in the trade balance."
Some observers now fear a banking crisis amid tighter liquidity, depositor-flight and non-performing loans.
"Urgent action is required in the financial sector," said Michael Pease, chairman of the Vietnam Business Forum. "Vulnerability of some financial institutions threatens not just the domestic financial sector but also the confidence of foreign investors."
Vietnam's government -- which has adopted a fight-inflation-first strategy and pledged other economic fixes -- has lowered its 2008 economic growth target to 7 percent from last year's blistering 8.5 percent.
IMF country chief Benedict Bingham has suggested Vietnam cool its "overheated" economy with higher interest rates and public spending cuts, freeing up of the exchange rate and accelerated reforms of its state-owned enterprises.
While Bingham said the IMF was "encouraged" by government plans to fix the economy, he called for "a concrete and convincing policy package that will bolster investor confidence and restore macroeconomic stability."
6 comments:
Now if they had an opposition politician like Sam Rainsy in Vietnam, he would blame it all on the the incompetent government, notwithstanding the fact that those problems are the result of almost automatic economic processes. But then Vietnam doesn't have any opposition so they don't have to contend with that kind of ignorant attack. In that sense Cambodia is really lucky to have an opposition, albeit an incompetent one - it is not only the inept government.
I have a hope that my countrymen and I fight to have an opposition like Sam Rainsy in Vietnam. This communist governemnt of Vietnam is too corrupted and has destroyed everything Vietnam had before. The country is being led to a vassal of China.
Halaluyah! What good is being under a control freak Communist anyway?
Don't get excited; every country has problem here and there. I am sure they will solved the problem.
At any rate, Vietnam is still one of the fastest growing country in the world and they are only 2nd to China. Thus, the inflation isn't going to hurt them all that much.
Furthermore, Vietnam is still ahead of Cambodia, and Ah Scam Rainxy ain't gonna do any better then them. On his best day, he'll be lucky if he can matched Zimbabwe.
Vietnam is my country I care. It is not your country 4:16 PM. I hate Commie. Understand?
Are you also Vietnamese who support Communist?
I like the way Cambodia has an opposition leader to challenge the corrupt Commie government. I want my country to be freed form Commie.
Understand?
10:26pm Ditto for Cambodia,the building bubble will burst and then what?
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